KSB

15-07038 State of Kansas Department of Labor v. Oliver, Jr. (Doc. # 9)

State of Kansas Department of Labor v. Oliver, Jr., 15-07038 (Bankr. D. Kan. Jan. 20, 2016) Doc. # 9

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SO ORDERED.
SIGNED this 20th day of January, 2016.

 

UNITED STATES BANKRUPTCY COURT
DISTRICT OF KANSAS


In re: Case No. 15-40880
Dan Henry Oliver, Jr., Chapter 13

Debtor.

State of Kansas, ex rel,
Lana Gordon, Secretary of Labor,


Plaintiff, Adv. No. 15-7038

v.
Dan Henry Oliver, Jr.,
Defendant.

Order Denying Defendant’s Motion to Dismiss

Plaintiff Kansas Department of Labor (“KDoL”) seeks a declaratory judgment
that its claim against Defendant/Debtor Dan Henry Oliver, Jr., arising from an
administrative determination that Debtor fraudulently received unemployment
insurance benefit overpayments (“unemployment benefit overpayments”), is

Case 15-07038 Doc# 9 Filed 01/20/16 Page 1 of 13


nondischargeable. Debtor moves to dismiss KDoL’s complaint under Fed. R. Civ. P.
12(b)(6)1 for failure to state a claim upon which relief can be granted, arguing that the
statute of limitations governing KDoL’s claim has expired. The Court concludes that
the Kansas unemployment benefit statute2 does not contain a statute of limitations
barring KDoL from seeking nondischargeability of its debt. Therefore, Debtor’s motion
to dismiss KDoL’s complaint is denied.

I. Factual and Procedural History
KDoL filed its complaint on November 28, 2015, alleging that Debtor engaged
in intentional and willful misrepresentations regarding his employment status, and,
by doing so, obtained improper unemployment benefits from the state of Kansas. KDoL
requested the Court find its claim arising from Debtor’s receipt of unemployment
benefit overpayments to be nondischargeable under 11 U.S.C. § 523(a)(2)(A)3 due to the
alleged misrepresentations.

According to KDoL, over a period of three months in 2008, Debtor applied for
and received approximately $5000 in unemployment benefits from the state. KDoL’s
records reflect that during this time, Debtor reported $0.00 wages per week, when he
was actually employed by Shawnee County, Kansas. Relying on Debtor’s reporting,
KDoL paid out $385 a week for fourteen weeks. About six months later, KDoL

1 Rule 12 is made applicable to bankruptcy by Fed. R. Bankr. P. 7012.
2 K.S.A. §§ 44-701 to 770.
3 For the remainder of this decision, all references to the Bankruptcy Code (Title 11) will be


to section number only.

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investigated whether Debtor had fraudulently obtained those benefits. In June, 2009,
KDoL issued a final administrative order finding that Debtor willfully and knowingly
failed to report his correct earnings while requesting unemployment benefits and had
thus fraudulently received those benefits.4

KDoL then sent a letter informing Debtor of this determination and stated that
Debtor would be disqualified from receiving benefits from April 12, 2009 to April 17,
2010. KDoL also informed Debtor that he had sixteen days to appeal the determination
before it became final. Debtor did not appeal the determination, nor has it been
reversed, modified, or set aside.

Debtor filed his bankruptcy case on September 1, 2015, over six years after
KDoL’s final order. During that time, KDoL took no further actions to pursue its claim
against Debtor. Debtor listed KDoL on Schedule F as a nonpriority, unsecured claim,
and KDoL seeks a determination that its claim (which it indicates now stands at
$10,583.88)5 is nondischargeable.6

4 KDoL’s complaint states that the examiner’s determination establishing the overpaymentwas “made and entered” on June 1, 2009. Doc. 1, at p. 8. However, the letter attached to thecomplaint is dated June 30, 2009. Doc. 1, Ex. B. The complaint nor any of the subsequentpleadings in this adversary clarify which date the examiner’s determination was actuallymade. However, in a pleading in Debtor’s main case, Case No. 15-40880, KDoL references afinal administrative order issued June 30, 2009 and does not allege any action takenagainst Debtor on June 1, 2009. Doc. 23, at p. 2. As the date of the letter is not dispositive ofthe statute of limitations issue, the Court declines to decide for KDoL which date marks the
final order establishing Debtor’s liability for overpayments.

5 This amount represents Debtor’s outstanding balance consisting of principal ($4,872) andinterest through the end of October, 2015 ($5,711.88).

6 Subsequent to the filing of KDoL’s complaint, Debtor objected to KDoL’s proof of claim inhis main case. See Case. No. 15-40880, Doc. 22. KDoL’s proof of claim reflects $24,592.73total in benefit overpayments, partially secured by a statutory lien on Debtor’s real and

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Debtor responded to KDoL’s complaint by filing a motion to dismiss alleging that

the statute of limitations had run on the underlying debt. Debtor’s motion does not

dispute the relevant facts at issue.

The Court has jurisdiction to hear this motion under 28 U.S.C. §§ 157, 1334. The

determination of dischargeability of a debt is a core proceeding under 28 U.S.C. §

157(b)(2)(I) and this district is the proper venue under 28 U.S.C. § 1409.

II. Analysis
A. Standard for Considering a Rule 12(b)(6) motion to dismiss
To survive a Rule 12(b)(6) motion to dismiss on statute of limitations grounds,

a complaint must contain sufficient facts to allow a court to reasonably infer that a

defendant’s liability is not time-barred.7 The Court’s analysis is limited to those facts

personal property located in Leavenworth County, Kansas. In its response to Debtor’sobjection to its proof of claim, KDoL refers to two final administrative orders determiningDebtor’s liability for benefit overpayments—one from June 26, 2009 for the weeks startingNovember 8, 2008 and ending May 16, 2009; the other from June 30, 2009, described above.
See Doc. 23. KDoL’s complaint limits its request for relief to the actions leading to and thedebt following the June 30, 2009 letter, and the Court will not consider any extrinsic factsalleged in pleadings in Debtor’s main case. See Thompson v. Ill. Dep’t of Prof’l Regulation,
300 F.3d 750, 753 (7th Cir. 2002) (“The consideration of a 12(b)(6) motion is restricted solelyto the pleadings, which consist generally of the complaint, any exhibits attached thereto,
and supporting briefs.”) (cited by Janes v. Lyons (In re Lyons), No. 09-22773, 2010 WL
1257746, at *2 (Bankr. D. Kan. Mar. 26, 2010)).

7 See Harris v. City of New York, 186 F.3d 243, 251 (2d Cir. 1999) (“[T]he survival of a Rule12(b)(6) motion to dismiss on statute of limitations grounds requires only allegationsconsistent with a claim that would not be time-barred.”); In re Lyons, 2010 WL 1257746, at
*2 (“To survive a Rule 12(b)(6) motion to dismiss, . . . a complaint must contain sufficientfactual allegations to state a plausible claim to relief. A claim is plausible when plaintiffpleads sufficient facts to allow the court to reasonably infer the defendant is liable for thealleged conduct.”).

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contained in the pleadings, including exhibits,8 and the Court accepts all well-pleaded
facts as true and construes them in the light most favorable to KDoL.9

Section 523(a)(2)(A) excepts from discharge any debt for money, property, or
services obtained by false pretenses, false representations, or actual fraud.10 In an
action for a determination of nondischargeability under § 523(a)(2)(A), a complaint
must include facts showing that: “(1) the debtor made a false representation; (2) the
debtor intended to deceive the creditor; (3) the creditor relied on debtor’s conduct; (4)
the creditor’s reliance was justifiable; and (5) the creditor was damaged as a proximate
result.”11

B.
Statute of Limitations Determination in a Nondischargeability
Action under § 523(a)(2)(A)
To assess whether a statute of limitations bars KDoL’s complaint, the Court
must first determine whether an established debt exists. The Tenth Circuit, in
Resolution Trust Corp. v. McKendry (In re McKendry), formulated the issue in this
way:

8 See Thompson, 300 F.3d at 753 (“The consideration of a 12(b)(6) motion is restricted solelyto the pleadings, which consist generally of the complaint, any exhibits attached thereto,
and supporting briefs.”) (cited by In re Lyons, 2010 WL 1257746, at *2).

9 See In re Lyons, 2010 WL 1257746, at *2 (citing Lawrence Nat’l Bank v. Edmonds (In re
Edmonds), 924 F.2d 176, 180 (10th Cir. 1991)) (“In considering a motion to dismiss, theCourt accepts all well-pleaded factual allegations, as opposed to conclusory legalallegations, as true and construes them in the light most favorable to the plaintiff.”).

10 § 523(a)(2)(A).

11 Ez Loans of Shawnee v. Hodges (In re Hodges), 407 B.R. 415, 419 (Bankr. D. Kan. 2009)
(citing In re Davis, 246 B.R. 646, 652 (10th Cir. BAP 2000)).

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“We . . . find two distinct issues in a nondischargeabilityproceeding. The first, the establishment of the debt itself, isgoverned by the state statute of limitations—if suit is not broughtwithin the time period allotted under state law, the debt cannot beestablished. However, the question of the dischargeability of thedebt under the Bankruptcy Code is a distinct issue governed solelyby the limitations periods established by bankruptcy law.”12

The question facing the Tenth Circuit in McKendry was “where a debt has been
reduced to judgment in state court, can the bankruptcy court be barred by a state
statute of limitations from considering the underlying nature of the debt in
determining whether the debt is dischargeable.”13 In that case, the creditor had
obtained a deficiency judgment from a state court a week prior to the debtor filing for
bankruptcy, then sought to have the judgment debt determined nondischargeable by
the bankruptcy court under § 523(a)(2).14 The debtor argued that the creditor’s
nondischargeability action was barred by the state statute of limitations for fraud
actions, which had expired. The Tenth Circuit concluded that “the debt ha[d] already
been established, so the state statute of limitations [was] immaterial.”15

The crux of Debtor’s motion to dismiss KDoL’s complaint relates to the first
prong of the McKendry analysis: was the debt “established” prior to the expiration of
time under the applicable Kansas statute of limitation? To answer, the Court must
discern what, if any, statute of limitations applies to the collection of debt incurred by

12 40 F.3d 331, 337 (10th Cir. 1994).
13 Id. at 334.
14 Id. at 333.
15 Id. at 337.


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an unemployment benefit overpayment.

KDoL argues that the Kansas unemployment benefit statute does not include
a “statute of limitations to time-bar the collection or recovery of UI [unemployment
insurance] overpayments.”16 KDoL does not contend that the Kansas unemployment
benefit statute explicitly states that there is no time limit to the recovery of an
overpayment, but argues that the absence of any mention of a time limitation
evidences the legislature’s intention to allow recovery of overpayment indefinitely. To
support this interpretation, KDoL points to other time-based process deadlines (length
of time to appeal, etc.) included in the Kansas unemployment benefit statute. In other
words, the creation of time limits for some actions under the Kansas unemployment
benefit statute necessarily implies that the absence of limitations for collection actions
allows for collection at any time now or in the future.

Debtor argues that KDoL’s claim arises out of the penalty section for benefit
overpayments in K.S.A. § 44-719(a), which reads, in pertinent part: “Any person who
makes a false statement or representation knowing it to be false . . . to obtain or
increase any benefit or other payment under this act, . . . shall be guilty of theft and
shall be punished in accordance with the provisions of K.S.A. 2013 Supp. § 21-5801 .
. . .” Section 21-5801 is a statute outlining the punishment for criminal theft.17 As the
penalty for unemployment benefit overpayments is criminal, so Debtor argues, it must

16 Doc. 7, at p. 11.

17 K.S.A. § 21-5801(b)(3) (“Theft of: . . . property or services of the value of at least $1,000but less than $25,000 is a severity level 9, nonperson felony . . . .”).

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be controlled by the time limitations for prosecution, which is five years.18 As an initial
matter, the Court rejects Debtor’s theory that the criminal prosecution statute of
limitations applies in this case. Dischargeability determinations concern only civil
liability, and thus the Court’s analysis is narrowed to those limits placed on civil
actions.

Debtor’s reply also argues that KDoL is barred from collecting benefit
overpayments by the statute of limitations for civil actions, as applied to public bodies
through K.S.A. § 60-521. Section 60-521 states that the statutes of limitation for civil
actions19 apply to “any cause of action accruing to the state, . . . which . . . arises out of
any proprietary function or activity . . . .”20 Debtor’s reply cites to three cases
purporting to establish that KDoL’s pursuit of unemployment benefit overpayments
constitutes a proprietary function under K.S.A. § 60-521.21 In fact, Debtor cites to cases
that point to the opposite conclusion. For example, Debtor cites to State ex rel. Schneider

v. McAfee22 which defines governmental functions and distinguishes them from
proprietary functions, which “are exercised when an enterprise is commercial in
18 K.S.A. § 21-5107(d) (“[A] prosecution for any crime . . . shall be commenced within fiveyears after it is committed.). Defendant also argues that prosecution under K.S.A. § 44719(
f)(4)(A) is barred by the statute of limitations on prosecutions. Subsection (f)(4)(A),
however, applies only to “an employing unit” subject to the requirements of K.S.A. § 44710a
(“Employer contributions, liability for and payment of . . . .”) and therefore would notapply to Debtor. K.S.A. § 44-719(f)(4)(A).

19 See generally K.S.A. §§ 60-511 to 516 (Kansas statutes of limitation for civil actions).

20 K.S.A. § 60-521.

21 See Doc. 8, at p. 2.

22 578 P.2d 281, 283, 2 Kan. App. 2d 274, 276 (Kan. Ct. App. 1978).

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character or is usually carried on by private individuals.”23 The Kansas Court of
Appeals found in McAfee that “[g]overnmental functions are those which are performed
for the general public with respect to the common welfare.”24 The management of the
unemployment benefit system in Kansas is undoubtedly a function performed by the
government to benefit the public welfare. Thus, as KDoL is not performing a
proprietary function when collecting unemployment benefit overpayments, K.S.A. § 60521
does not apply and KDoL is not barred by the statute of limitations for civil

actions.25

Liability for benefit overpayments is determined by an examiner appointed
under K.S.A. § 44-709. Examiners are responsible for both the initial determination
that a claim is valid and for any reconsideration of the claim.26 A decision by an
examiner is final unless the claimant files an appeal within sixteen days.27

Section 44-719 describes the penalties for unemployment benefits ineligibly
received. Subsection (d)(1) establishes civil liability for “any person who has received

23 Id.

24 Id.; see also Kansas Pub. Emps. Ret. Sys. v. Reimer & Koger Assocs., 941 P.2d 1321,
1328–43, 262 Kan. 635, 644–669 (1997) (finding that the investment activity performed bythe Kansas Public Employees Retirement System for the benefit of qualifying employeeswas a governmental function under § 60-521); City of Lakin v. Kansas Sec. Bd. of Review,
865 P.2d 223, 225, 19 Kan. App. 2d 188, 190 (Kan. Ct. App. 1993) (finding that the Kansasunemployment benefit statute “articulates our public policy to be concerned withinvoluntary unemployment as a serious menace to the health, welfare, and morals ofKansans”).

25 K.S.A. § 60-521.

26 K.S.A. § 44-709(b)(1) and (2).

27 Id.; K.S.A. § 44-709(b)(3).

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any amount of money as benefits under this act while any conditions for the receipt of
benefits . . . were not fulfilled.”28 Any such person is liable either “to have such amount
. . . deducted from any future benefits” or “to repay to the secretary . . . an amount of
money equal to the amount so received.”29 The Secretary of Labor has sole discretion
to choose not just how the debt arising from the above-mentioned liability is collected,
but also when.30 Section 44-719(d)(1) is devoid of a period within which the Secretary
of Labor must make a determination on how to collect on a debt arising from
unemployment benefit overpayments.31

Indeed, it is telling that the only restriction included in this subsection impedes
the Secretary of Labor’s equitable power to waive collection for those overpayments not
due to fraud, misrepresentation, or willful nondisclosure: the Secretary of Labor, after
five years, may waive collection of unemployment benefit overpayments so long as they
were not obtained through fraud and the collection would be against equity or would
cause extreme hardship.32 The Secretary of Labor may, at any time, waive collection
of unemployment benefit overpayments if, at the time those payments were received,
the person met all the eligibility requirements under the law.33 The option to waive

28 K.S.A. § 44-719(d)(1).
29 Id.
30 Id.
31 See id.
32 See id.
33 See id.


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collection is left to the sole discretion of the Secretary of Labor. Thus, though the
Secretary of Labor may choose to waive collection for some overpayment liability, the
statute provides she may never waive collection on those payments obtained by
fraud—further supporting a reading that the legislature intended to give the Secretary
of Labor broad rights in collecting unemployment benefit overpayments obtained
through fraud.

In addition, K.S.A. § 44-719(d)(3) describes the ways in which the Secretary of
Labor can collect from a liable individual. This subsection refers to K.S.A. § 44-717,
which describes, in detail, the manner in which the Secretary of Labor can collect
employer payments.34 Included in this section are: state court collection actions, liens,
levies, and seizures of property.35 The authority granted under K.S.A. § 44-717 is self-
effectuating and absent time limitations.36

Put together, the separate sections of the Kansas unemployment benefit statute
do not limit the time in which an examiner can affix liability for unemployment benefit

34 Though K.S.A. § 44-717 was not written to apply explicitly to individuals who havereceived overpayments, K.S.A. § 44-719(d) provides that overpayments “shall be collectiblein the manner provided in K.S.A. 44-717.”

35 See §§ 44-717(b), (e)(1)–(3). Section 44-717(b)(1) (“Collection”) refers to a five year timeperiod within which “[a]ll liability determinations of contributions due . . . shall be made . . .
except such determinations may be made for any time when an employer has filedfraudulent reports with intent to evade liability.” (Emphasis added.) The term “liabilitydeterminations” is not defined, but stands in contrast to the phrase “collection by civilactions” referred to earlier in the section. Thus, the Court interprets the term “liabilitydetermination” to refer to the administrative process wherein an examiner validates aclaim. See K.S.A. § 44-709(b) (describing the process through which claims are validated byan examiner). In addition, any liability based on fraudulent activity is not subject to a timelimitation.

36 See id.

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overpayments obtained through fraud nor do they limit the ability of the Secretary of
Labor to collect on said debt.

The complaint alleges that, in June, 2009, KDoL issued an order, pursuant to

K.S.A. § 44-709(3), finding Debtor liable for approximately $5000 in unemployment
benefit overpayments. Debtor declined to appeal this final order. Debtor argues that
the order does not create liability for the amount owed without a state court judgment.
The Court disagrees. Under K.S.A. § 44-717(b), KDoL is given the express right to
collect on a liability determination by an examiner without first asking a state court
for a judgment that an overpayment recipient is liable. Similarly, the legislature has
authorized KDoL to record liens and levies and even seize property in order to satisfy
a liability determination.37 Thus, the legislature must have intended that an
examiner’s final liability determination for fraudulently received unemployment
benefits be treated akin to a state court judgment establishing a debt. The basis for
KDoL’s claim, therefore, is identical in nature to the creditor’s claim in McKendry—a
state court judgment establishing a debt. In light of this analysis, the Court finds that
the first prong of the McKendry test is satisfied.
The second prong of the McKendry analysis requires a court to dismiss a
nondischargeability complaint if it is filed more than 60 days after the first scheduled
meeting of creditors.38 The first meeting of creditors in Debtor’s underlying bankruptcy

37 § 44-717(d)(1)–(3).
38 40 F.3d at 337; Fed. R. Bankr. P. 4007(c).


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case was set for October 1, 2015.39 Thus, the deadline for filing KDoL’s complaint was
November 30, 2015. As KDoL’s complaint was filed on November 28, 2015, it was
timely filed and satisfies the second prong of the McKendry analysis.

III. Conclusion
KDoL’s debt is established under state law and KDoL’s complaint was timely
filed under the Bankruptcy Code. The Court therefore denies Debtor’s motion to
dismiss for failure to state a claim. In his motion to dismiss, Debtor also requests the
Court assess his attorney’s fees against KDoL pursuant to § 523(d). As awards for
attorney’s fees are only available to a debtor if the Court discharges the debt and finds
that the creditor’s position was not substantially justified, the Court denies Debtor’s
request for attorney’s fees.40 Defendant is directed to file an answer to Plaintiff’s
complaint by February 3, 2016 pursuant to Fed. R. Bankr. P. 7012(a).

It is so ordered.

###

39 Case No. 15-40880, unnumbered docket entry on September 1, 2015.

40 § 523(d); see KC Coring & Cutting Constr., Inc. v. McArthur (In re McArthur), 391 B.R.
453, 459 (Bankr. D. Kan. 2008) (“Damages under 11 U.S.C. § 523(d) are available only fordischarged consumer debts and only if the court finds the creditor’s position was notsubstantially justified.”).

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15-40558 Wark (Doc. # 75)

In Re Wark, 15-40558 (Bankr. D. Kan. Dec. 17, 2015) Doc. # 75

PDFClick here for the pdf document.


 

SO ORDERED.
SIGNED this 17th day of December, 2015.

 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re: Case Nos.

Wark 15-40558
Tetuan/Milholen 15-40566
Ellsperman 15-40609
Blacksmith 15-40641
Rayton 15-40644
Neu 15-40647
Tinkham 15-40654
Parker 15-40655
Hayes 15-40661
Huggins, 15-40681


Debtors.

Memorandum Opinion and Order

Can a below median income debtor in bankruptcy, impoverished and struggling

to meet monthly financial obligations, choose to file a Chapter 13 petition instead of

a Chapter 7 petition? What if that debtor wishes to have assistance of competent

counsel to navigate the complex bankruptcy system with its myriad forms, rules and

schedules, to help ensure she exits bankruptcy with a discharge and the best fresh

Case 15-40558 Doc# 75 Filed 12/17/15 Page 1 of 107


start the law allows? What if that counsel comes with a comparatively high $3100
presumptively reasonable fee for a Chapter 13 case, but will charge “only” $1800 to
handle a Chapter 7 case? What if the debtor, instead of choosing to delay filing
bankruptcy while attempting to save funds to pay counsel for the cheaper Chapter 7
option, or perhaps worse yet, choosing to navigate the bankruptcy system pro se, elects
to instead immediately file a Chapter 13 petition where she can pay her counsel’s fee
through her Chapter 13 plan? What justification must the debtor present for her
choices? Is it enough if she is being garnished 25% of her income? How about merely
harassing phone calls from her creditors? Or is something more required?

The United States Trustee (the “U.S. Trustee”) urges this Court to set a high
threshold for debtors to choose a Chapter 13 when they are otherwise eligible for a
Chapter 7, arguing that debtors should not have this choice. Instead, he argues debtors
cannot choose to file a Chapter 13 petition and plan unless they can show “special
circumstances” justifying the filing of a Chapter 13 petition and plan, and being unable
to raise the cash to hire competent counsel is not such a special circumstance in the

U.S. Trustee’s estimation. The law in the Tenth Circuit, however, has not so developed,
and this Court instead looks to the totality of the circumstances surrounding each
debtor’s filing to determine whether these Debtors have filed their Chapter 13
bankruptcy plan in good faith, as required by 11 U.S.C. § 1325(a)(3).1
The Court conducted trials in each of these cases, and considered the Tenth

1 Unless noted otherwise, all future statutory references are to title 11 of the UnitedStates Code, the Bankruptcy Code.

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Circuit’s totality of circumstances test for each case before concluding that Debtors did
not lack good faith in filing their particular Chapter 13 petition and plan. In a few of
the cases discussed, the U.S. Trustee’s objections to confirmation based on feasibility
under § 1325(a)(6) are well taken, and the particular facts of those cases will be
discussed in detail. Ultimately, for the majority of the cases, the Court finds no fault
in the choices Debtors have made, and declines to take the U.S. Trustee’s suggestion
to supplant Debtors’ choices with his own.

I. Background and Procedural History
Each of these Debtors filed Chapter 13 petitions and plans with the assistance
of experienced bankruptcy counsel, and each lawyer sought the Court’s “presumptively
reasonable fee”2—ranging from from $3150 to $3400. Each Debtor has proposed a plan
that pays those attorneys’s fees, the trustee fee of up to 10% on all funds disbursed,
and the $310 filing fee over at least 36 months. A few of the cases project marginal
additional distributions to unsecured, priority creditors, but none project payment
toward general unsecured debt. None of the Debtors own a home, some do not even
own a car, and most have no secured collateral they are trying to pay for or otherwise

2 In 2007, this Court heard evidence to generally determine how many hours it takesto represent an “average” debtor for the life of the Chapter 13 case from first intake throughdischarge. The Court then set a “presumptively reasonable fee,” meaning that if counselsought that fee, it was likely the fee would not be challenged. See In re Beck, No. 06-40774
(Doc. 35), 2007 Bankr. LEXIS 517, at *22–28 (Bankr. D. Kan. Feb. 21, 2007) (case notavailable on Westlaw). Contrary to the U.S. Trustee’s suggestion, only if that fee isconsumed with services performed at a reasonable hourly rate is an attorney permitted toseek additional fees during the pendency of a Chapter 13 case. Id. at *41–44.

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save through their bankruptcy.3 Each Debtor’s income is below median, meaning their
annualized current monthly income is less than the median family income for a Kansas
household of applicable size—and in almost every case, dramatically less, and each
Debtor is committed to making plan payments for a minimum of three years.

The U.S. Trustee objected to confirmation of each of the Chapter 13 plans,
generally arguing that by definition both the petition and plan of each Debtor were not
filed in good faith under § 1325(a)(3) and (a)(7) because each Debtor chose to file under
Chapter 13 when they could have filed under Chapter 7. He also argued each plan was
not feasible under § 1325(a)(6) and thus moved to convert each case to one under
Chapter 7. The U.S. Trustee does not argue that Debtors have mislead the Court or
acted fraudulently. In fact, the U.S. Trustee admits both that Debtors have “done
nothing wrong” and that each Debtor needs bankruptcy relief.

In many of these cases, the Chapter 13 Standing Trustee, Jan Hamilton (the
“Standing Trustee”), also objected to confirmation (and moved to dismiss) based on a
lack of good faith in filing the plan. And finally, in a few of the cases, the Standing

3 Ironically, had the Debtors herein been less responsible, say, if they had allowedpayments to become delinquent on a car loan or had an arrearage on a home loan, it islikely the U.S. Trustee would not have objected to their proposed plans because in hisopinion, there would have been a “need” for Chapter 13 relief. Another way of looking at ourDebtors, is if they had been less poor, so that they could have afforded such things ashouses and cars, they may have had debt on that type of collateral that needed adjusted.
The Debtors in these cases are simply too poor to have such debts. See In re Denis, No. 1016784-
B-13, 2010 WL 9489202, at *7 n.10 (Bankr. E.D. Cal. Nov. 1, 2010) (discussingtrustee’s good faith challenge to the debtors’ plan and stating: “Ironically, if the Debtors hadnot maintained the payments on their first mortgage, or had a delinquent car loan, and hadan arrearage to pay through the chapter 13 plan, the court does not believe the Trusteewould have objected.”).

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Trustee additionally objected to confirmation (and moved to dismiss) based on
feasibility.

Because the objections and motions in these cases deal with the same legal
challenges, the Court took evidence in each case serially, and will address all the cases
within this Opinion.4 Additional facts about each case will be introduced as each case
is individually analyzed.

No one disputes that this Court has jurisdiction to decide these matters,5 as they
are core proceedings.6

II. Legal Standards
A. Chapter 13 Reorganization Versus Chapter 7 Liquidation
The two goals of bankruptcy are oft-stated: “[t]he principal purpose of the
Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor’”7 —
and everyone agrees these Debtors squarely fall within this description. This fresh

4 All parties agreed to allow John Hooge, a local, experienced debtors’ attorney, tofile an amicus brief in each case, and the Court has fully considered that brief along withthe parties’ motions and objections, the trial briefs filed in each case, the evidencepresented at each trial, and the arguments of Counsel.

5 This Court has jurisdiction pursuant to 28 U.S.C. § 157(a) and 11 U.S.C. § 1334(a)
and (b) and by operation of a Standing Order dated August 1, 1984, effective July 10, 1984,
referenced in D. Kan. Rule 83.8.5, wherein the District Court for the District of Kansas
referred all cases and proceedings in, under, or related to Title 11 to the Districts’bankruptcy judges.

6 See 28 U.S.C. § 157(b)(2)(A) and (L) (stating that “matters concerning theadministration of the estate” and the “confirmation of plans” are core proceedings that abankruptcy judge has jurisdiction to hear and determine).

7 Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007) (quoting Grogan v.
Garner, 498 U.S. 279, 286, 287 (1991)).

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start must be balanced, however, with the additional goal of ensuring “the fair and
equitable treatment of the creditors of a debtor in bankruptcy.”8

Although the overarching bankruptcy goals are the same, the Chapter 13
bankruptcy process significantly differs from the Chapter 7 bankruptcy process.
“Chapter 13 authorizes an individual with regular income to obtain a discharge after
the successful completion of a payment plan approved by the bankruptcy court.”9 In a
Chapter 13 bankruptcy, “the debtor retains assets, often his home, . . . subject to [that]
court-approved plan.”10 Repayment plans in Chapter 13 cases last three to five years
(the applicable commitment period), depending on whether the Chapter 13 debtor has
monthly income below or above median.11 Plan payments are made from a debtor’s
“future earnings or other future income.”12

That three to five year commitment period, while onerous in the sense that the

8 In re Westby, 473 B.R. 392, 401 (Bankr. D. Kan. 2012); see also Schwab v. Reilly,
560 U.S. 770, 791–92 (2010) (“The Code limits exemptions in this fashion because everyasset the Code permits a debtor to withdraw from the estate is an asset that is not availableto his creditors. Congress balanced the difficult choices that exemption limits impose ondebtors with the economic harm that exemptions visit on creditors.”); Grogan v. Garner, 498

U.S. 279, 286–87 (1991) (stating that “a central purpose of the Code is to provide aprocedure by which certain insolvent debtors can reorder their affairs, make peace withtheir creditors, and enjoy a new opportunity in life with a clear field for future effort,
unhampered by the pressure and discouragement of preexisting debt,” but noting thatstatutory limits on that fresh start, due, for example, to discharge exceptions, limit thisfresh start (internal quotation marks omitted)).
9 Marrama, 549 U.S. at 367.

10 Harris v. Viegelahn, ___ U.S. ___, 135 S. Ct. 1829, 1834 (2015).

11 See In re Lanning, 545 F.3d 1269, 1275 (10th Cir. 2008) (describing applicablecommitment period for below-median and above-median debtors).

12 Harris, 135 S. Ct. at 1834.

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debtor is continuously under the jurisdiction of the bankruptcy court, provides some
relief for the debtor regarding his nondischargeable unsecured debt. For example,
collection of unsecured taxes and student loans are stayed during the pendency of the
Chapter 13 case due to the bankruptcy automatic stay, whereas those creditors could
commence collection against the Chapter 7 debtor immediately after discharge is
entered in the comparatively much shorter Chapter 7 case.13 And because debtors may
not incur debt without authorization, debtors also must learn to live within a budget
during the time they are under the Court’s jurisdiction. Finally, if they have retained
counsel to assist them, debtors also have access to legal support for the duration of
their Chapter 13 bankruptcy.

The Chapter 7 proceeding is a much faster process: in a Chapter 7 proceeding,
“the debtor’s assets are immediately liquidated and the proceeds [are] distributed to
creditors.”14 “Chapter 7 allows a debtor to make a clean break from his financial past,
but at a steep price: prompt liquidation of [his or her] assets.”15

There are also differences in who is eligible to file a petition under each Chapter
of the Bankruptcy Code. The Chapter 13 process is “wholly voluntary,”16 but Chapter

13 See, e.g., In re Waugh, 109 F.3d 489, 493 (8th Cir. 1997) (describing the automaticstay as it relates to collection of tax debt).

14 Harris, 135 S. Ct. at 1834.

15 Id. at 1835; see also Marrama, 549 U.S. at 367 (“Chapter 7 authorizes a dischargeof prepetition debts following the liquidation of the debtor's assets by a bankruptcy trustee,
who then distributes the proceeds to creditors. . . . Under Chapter 7 the debtor's nonexemptassets are controlled by the bankruptcy trustee[.]”).

16 Harris, 135 S. Ct. at 1835.

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13 relief is only available to “an individual with regular income” who owes debts less
than a statutorily specified sum.17 To file a Chapter 7 petition, the debtor must pass
a “means test:” if the debtor’s “current monthly income” is less than or equal to the
median income for a family in Kansas, then they are presumed to be eligible to file a
Chapter 7 petition.18 In addition, to be eligible for a Chapter 7 discharge, a debtor
cannot have received a Chapter 7 discharge in the last eight years, or a Chapter 13
discharge in the last six years.19 To contrast, a debtor cannot receive a Chapter 13
discharge if they have received a discharge in a Chapter 7 case within the last four
years, or in a Chapter 13 case in the last two years.20

Postpetition wages are also treated differently by Chapter 13 and Chapter 7. “In
a Chapter 13 proceeding, postpetition wages are property of the estate and may be
collected by the Chapter 13 trustee for distribution to creditors. In a Chapter 7
proceeding, those earnings are not estate property; instead, they belong to the
debtor.”21 Because of this differing treatment, the Supreme Court has noted:
“Proceedings under Chapter 13 can benefit debtors and creditors alike. Debtors are

17 § 109(e). The debt limits, also found in § 109(e), are: “noncontingent, liquidated,
unsecured debts of less than $383,175 and noncontingent, liquidated, secured debts of lessthan $1,149,525.”

18 See Lanning, 545 F.3d at 1272 n.2 (describing means test). Each of these Debtorsis far below median. For example, the median income for a family of one is $45,980, whichequates to about $3832 per month. As will be shown in the following discussion, Debtors’monthly incomes place them nowhere near the median income numbers.

19 § 728(a)(8)–(9).

20 § 1328(f).

21 Harris, 135 S. Ct. at 1834.

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allowed to retain their assets, commonly their home or car. And creditors, entitled to
a Chapter 13 debtor's “disposable” postpetition income, usually collect more under a
Chapter 13 plan than they would have received under a Chapter 7 liquidation.”22

There are also differences between the discharges available in a Chapter 13 case
versus a Chapter 7 case. For example, with a Chapter 13 discharge, non-support debts
owed in relation to a divorce or property settlement are dischargeable, while they are
nondischargeable in a Chapter 7 case.23

Finally, there are differences in the collectibility of attorney’s fees associated
with each Chapter. Because of the Supreme Court’s decision in Lamie v. United States
Trustee,24 which held that the Bankruptcy Code does not permit debtor’s counsel to be
compensated from estate funds,25 attorneys filing Chapter 7 petitions for debtors must
collect their fee up front lest the attorney risk that fee being rendered dischargeable
as a prepetition debt.26 It is also commonly believed that the significant amendments
to the Bankruptcy Code in 2005, which tightened the eligibility requirements for
Chapter 7 bankruptcy, “made the process more complicated—increasing the need for

22 Id. at 1835. This is, of course, highly fact dependent. For example, a debtor couldreceive a higher paying job while his Chapter 13 case was pending, and thus have morefunds available for a higher plan payment. But a debtor could also lose a job or earn less.

23 In re Okrepka, 533 B.R. 327, 333 (Bankr. D. Kan. 2015) (describing Code’streatment of support debts and property settlements and the dischargeability—or lackthereof—of each).

24 540 U.S. 526 (2004).

25 Id. at 538–39.

26 In re Puffer, 674 F.3d 78, 84 (1st Cir. 2012) (concurring opinion).

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legal advice and, in turn, the cost of filing for bankruptcy.”27

This Court has had prior occasion to consider attorney’s fees in Chapter 13 cases

filed in this District. In Beck,28 the Court determined that a “presumptively reasonable

fee should be adopted” for handling Chapter 13 cases,29 and set that fee at $2800 to

$3700 depending on the complexity of the case.30 Important for this Opinion, the Court

also considered “simple ‘fee only’ Chapter 13 case[s],” which the Court defined as:

cases where a debtor’s schedules and plan reveal no “visible” reason to filea Chapter 13 case instead of a Chapter 7 case, which can typically be filedfor a considerably lower attorney fee. In “fee only” cases, the schedulestypically reveal no house or car in jeopardy, or other issue where aChapter 13 would prove strategically more advantageous for theparticular debtor. The speculation is that the only reason the debtorelected to file under Chapter 13 is because he has no ability to pay theadmittedly lesser Chapter 7 attorney fee up front; debtor’s counsel thentakes his higher Chapter 13 fee over the life of the Chapter 13 case.31

Regarding fee only cases, the Court recognized that these “simple” cases may not

27 Id. The 2005 amendments also added a provision in § 526(a)(4) prohibiting “debt
relief agencies”—which in turn is defined to include debtors’ attorneys in § 101(12A)— from
advising persons to incur more debt in contemplation of filing a bankruptcy case. Ironically,
the U.S. Trustee questioned each of the Debtors why they couldn’t simply borrow the moneyto pay their attorney’s fee up front. This seems to violate the spirit, if not the letter, of the2005 amendments.

28 No. 06-40774 (Doc. 35), 2007 Bankr. LEXIS 517 (Bankr. D. Kan. Feb. 21, 2007).

29 Id. at *14.

30 Id. at *23–24. This presumptive fee was later altered by the “Professional Fee andExpenses Guidelines in Bankruptcy Cases Pending Before The Honorable Janice MillerKarlin, United States Bankruptcy Judge,” dated January 7, 2010, and available on thisCourt’s public website. The current presumptive fee ranges from $3100 to $4200, dependingon the particular factors involved in that case (e.g., above or below median income, conduitmortgages, the necessity of filing motions to extend the automatic stay under § 362(c)(3),
etc.).

31 Id. at *19–20 (internal footnotes omitted).

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justify charging the presumptive fee, and admonished debtors’ counsel to adjust their

fee to match the complexity of the issues in the particular case.32

Debtors have a choice to file their bankruptcy case, whether Chapter 13 or

Chapter 7, pro se. This Court in Beck, however, stressed the importance of debtors

retaining counsel to assist them. The Court stated:

It is absolutely imperative that competent counsel be motivated to seek,
accept and ably handle Chapter 13 cases. That motivation starts withbeing fairly compensated for the work they perform. The complexity andimportance of the work, alone, justify such compensation, but there areother reasons able counsel are vital to the system. The most importantreason is that this Court rather routinely sees pro se debtors “give away”
rights or property that they would otherwise be legally entitled to retainbecause of their ignorance of the law. A second, albeit less significant,
reason is that pro se debtors also increase the Court’s and Clerk’s costsof efficiently handling bankruptcies.33

This Court concluded that “having enough able counsel available to provide debtors the

32 Id. at *22. Based on this language in Beck, in a few of the cases herein, the
Standing Trustee filed objections to confirmation (and motions to dismiss) arguing that theattorney’s fee proposed in the plan was too high given the lack of complexity of the case. Asa result of the necessity for Debtors’ counsel to prepare for and try these fee only cases, theStanding Trustee has now concluded that the fees originally sought in each of these caseshave been consumed with work provided at a reasonable hourly rate. Accordingly, he hasnotified the Court he will be withdrawing his objections/motions based on the proposedattorney’s fee in all cases in which they were filed. Because they will be withdrawn, theywill not be further addressed in this Opinion.

33 Id. at *9 (internal footnotes omitted). Here are two typical and recent examples,
but the Court sees many others. A Chapter 7 Trustee recently objected to the attempt oftwo pro se debtors to exempt their cars, stated to be worth $3700 and $3000, respectively,
not because those exemptions are not allowed under state law (which pursuant to K.S.A. §
60-2304(c) generally allows Kansas debtors to exempt vehicles valued up to $20,000), butbecause those unrepresented debtors relied on the wrong statute. See In re Luster, No.
15-40793, Doc. 49 (Trustee’s Objection to Debtors’ Exemptions). Another Chapter 7 Trusteemoved to dismiss a pro se debtor’s case for many reasons, including the pro se debtor’sfailure to obtain the credit counseling certificate prior to filing a petition, as required by §
109(h)(1). This alone is typically a fatal mistake. See In re Board, No. 15-40967, Doc. 14
(Trustee’s Motion to Dismiss).

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relief that Congress, and the Kansas legislature through statutory exemptions, have

afforded Kansas debtors, is critical to the proper operation of the system.”34

The Court has not had occasion to consider the average cost of attorneys’ fees for

Chapter 7 cases in this District, but notes that testimony was received placing the

range at $1000 to $3500, with most attorneys charging $1800.

B. Good Faith in Filing the Chapter 13 Plan35
Debtors, as proponent of their Chapter 13 plan, bear the burden of proof to show

that their plans meet the requirements for confirmation found in § 1325(a).36

Specifically, § 1325(a)(3) requires that a Chapter 13 plan be “proposed in good faith and

34 Beck, 2007 Bankr. LEXIS, at *11.

35 Because the analysis for whether a Chapter 13 petition was filed in good faith isthe same—totality of the circumstances—as the analysis for whether a Chapter 13 planwas filed in good faith, the Court will not perform a separate inquiry as to each. See Brown

v. Gore (In re Brown), 742 F.3d 1309, 1316 (11th Cir. 2014) (applying same non-exhaustivefactors to both the 1325(a)(3) and 1325(a)(7) challenges and totality of circumstances test);
Gier v. Farmers State Bank of Lucas, Kan. (In re Gier), 986 F.2d 1326, 1329 (10th Cir. 1993)
(concluding that bankruptcy courts should consider the totality of the circumstances todetermine whether a Chapter 13 petition has been filed in bad faith and that theappropriate question is “whether or not under the circumstances of the case there has beenan abuse of the provisions, purpose, or spirit of” Chapter 13); In re Rodriguez, 487 B.R. 275,
282 (Bankr. D.N.M. 2013) (noting that the totality of the circumstances test is used for bothdetermining “whether a Chapter 13 petition was filed in good faith and whether a proposedChapter 13 plan was filed in good faith” and that the factors for each are similar, but notidentical). In the cases under review, the petitions and plans were filed nearlysimultaneously; the Court will refer throughout to good faith as it relates to the filing ofDebtors’ plans, but the conclusions reached will apply equally to good faith in filing thepetitions.
36 Alexander v. Hardeman (In re Alexander), 363 B.R. 917, 921–22 (10th Cir. BAP2007) (noting that “courts have concluded that the proponent of a Chapter 13 plan has theburden of proof to show that the § 1325(a) tests have been met” and agreeing with this lineof cases; specifically holding that the debtor has the burden of proving good faith under §
1325(a)(3)).

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not by any means forbidden by law.”37

The phrase “good faith” is not defined by the Code. While the Tenth Circuit has
generally ruled on good faith challenges to Chapter 13 plans, it has not had occasion
to opine on fee only Chapter 13 plans in the face of § 1325(a)(3) good faith challenges.
Other appellate courts, however, have addressed this issue. The Circuits to consider
challenges to fee only plans unanimously agree that fee only Chapter 13 cases are not
per se filed in bad faith, although the outcomes in the particular cases have varied.

For example, the Eleventh Circuit considered the issue in In re Brown.38 In
Brown, the debtor’s income mainly consisted of Social Security disability benefits, and
after deducting monthly expenses, he had net income of $150 per month.39 The debtor
had almost no personal property and no real property.40 His debt consisted of
unsecured, nonpriority claims.41 The debtor’s proposed Chapter 13 plan proposed
monthly payments of $150 for thirty six months, for a total payment of $5400.42 From
this amount, $2070 would be paid to his attorney (for the attorney’s fees, a credit

37 Regarding good faith in filing the Chapter 13 petition, § 1325(a)(7) requires that“the action of the debtor in filing the petition was in good faith.”

38 742 F.3d 1309 (11th Cir. 2014).

39 Id. at 1310.

40 Id.

41 Id. at 1311.

42 Id.

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report, and the debtor’s required credit counseling), $281 would pay the filing fee,43 and

4.5 percent of each payment would pay the Chapter 13 trustee’s commission.44 After
these payments were made, scheduled creditors would receive $2806, or about 17% of
the amount owed.45
The Eleventh Circuit upheld the bankruptcy court’s decision that the debtor in
Brown had not proposed his plan in good faith under § 1325(a)(3) under the required
abuse of discretion standard.46 The bankruptcy court found that “the only reason [the
debtor] filed a Chapter 13 petition, instead of a Chapter 7 petition, was so [the debtor]
could pay the $2000 attorney’s fee through installments under a Chapter 13 plan.”47
The bankruptcy court utilized substantially the same multi-factor, totality of the
circumstances test used within this Circuit,48 and in analyzing “the motivations of the
debtor and his sincerity in seeking relief under the provisions of Chapter 13,” found the
factor did not fall in the debtor’s favor, as the debtor “sought relief under chapter 13,
not to adjust debts and preserve assets, but to accommodate payment of attorney

43 The bankruptcy court noted that the debtor would qualify for an in forma
pauperis waiver of this filing fee in a Chapter 7 case, “but no such waiver is available inChapter 13 cases.” Id. at 1312.

44 Id. at 1311.

45 Id.

46 Id. at 1317.

47 Id. at 1312–13.

48 Id. at 1313 (discussing use of Kitchens factors, found in In re Kitchens, 702 F.2d
885, 888-89 (11th Cir. 1983), which relied on In re Estus, 695 F.2d 311 (8th Cir. 1982), thesame case supporting the Tenth Circuit’s Flygare factors, discussed below).

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fees.”49 The bankruptcy court “stressed the abysmal failure rate of chapter 13 cases
generally” in that district, and the burden the plan would have on the Chapter 13
trustee to “collect and distribute plan payments . .. . to pay his attorney’s fees.”50

In reviewing the bankruptcy court’s decision on this fee-only plan under the
required abuse of discretion standard, the Eleventh Circuit concluded:
[The debtor’s] Chapter 13 plan was all about attorney's fees, and not [thedebtor’s] best interest or the creditors. While the choice of chapter is onemade by the debtor, . . . this Chapter 13 plan was for the benefit of thelawyer and not in the best interest of the debtor. Indeed, there was noevidence in this particular record revealing unique circumstances thatwould lead to the conclusion that it was in [the debtor’s] best interest to

file under Chapter 13.
So while the Brown court affirmed the finding that the debtor’s plan was not filed in
good faith in that case, it looked to the totality of the circumstances of the particular
case rather than adopting any per se rule. It also noted it had no evidence to support
a finding that it was in the debtor’s best interest to file the Chapter 13 plan.

When the Fifth Circuit, in In re Crager,51 applied similar standards of law, it
reached a different result even though the debtor’s circumstances in Crager were very
similar to those of the debtor in Brown. The Crager debtor also had a minimal income

49 Id.

50 Id. at 1315. The Court notes that the Chapter 13 process is far different in thisDistrict. As discussed below: 1) exhibits admitted into evidence revealed that this Districthas the opposite of an “abysmal” success rate, 2) there was credible testimony from eachDebtor supporting a finding that it was in the Debtors’ best interest, and thus they werethemselves benefitted, to be able to seek relief considerably quicker via the Chapter 13route, and 3) the Standing Trustee credibly testified that administering fee only cases is nomore burdensome on him and his staff than administering any other case.

51 691 F.3d 671 (5th Cir. 2012).

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consisting of Social Security benefits, had mainly unsecured nonpriority debt (although
the debtor in Crager also had a mortgage on real property), and would have needed to
save for over a year to raise the money “to pay the up-front costs for a Chapter 7
bankruptcy.”52 The bankruptcy court in Crager also applied a totality of the
circumstances test to determine the good faith of filing an “attorney fee centric”
Chapter 13 plan, and noted that based on the rising costs of medical care, the debtor
“had a legitimate fear that a future medical problem” might cause her to take on more
debt and the need to file another Chapter 13 case.53

The Fifth Circuit also stated that “the bankruptcy court had the opportunity to
judge [the debtor’s] credibility as a witness and found credible her proffered reasons
for filing a Chapter 13 petition,” and that it was a “responsible decision” to file a
Chapter 13 petition “given her particular circumstances.”54 Significantly, the Fifth
Circuit had before it a record showing why the debtor chose to file her Chapter 13 plan,
and it supported that choice based on the totality of the circumstances surrounding the
case.

The First Circuit, in In re Puffer,55 is the only other Circuit court to address the
issue. In Puffer, the Court also applied the totality of the circumstances test to
determine whether the equitable concept of good faith was met by the filing of a “fee


52 Id. at 674.

53 Id. at 675.

54 Id.

55 674 F.3d 78 (1st Cir. 2012).

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centric” Chapter 13 plan.56 While also rejecting the position that fee only plans are per

se in bad faith, the Puffer court did note its concerns:

The fundamental purpose undergirding Chapter 13 is to allow a debtorto pay his creditors over time, and fee-only plans, by definition, leave thevast majority of debts unsatisfied. Moreover, fee-only arrangements maybe vulnerable to abuse by attorneys seeking to advance their owninterests without due regard for the interests of debtors; and such plans,
by their very nature, create that appearance.57

The Puffer court went on to conclude that there could be “special circumstances, albeit

relatively rare” in which the “odd” arrangement of a fee-only plan would be justified,

reiterating that good faith would have to be assessed on a case by case basis.58 The

debtor proposing a fee-only plan in the First Circuit “carries a heavy burden of

demonstrating special circumstances that justify its submission.”59

The First Circuit ultimately remanded the case for a determination whether the

“special circumstances sufficient to justify” the fee only plan were present, because the

bankruptcy court had not considered the totality of the circumstances in its good faith

56 Id. at 82.

57 Id. at 82–83.

58 Id. at 83.

59 Id. The concurring opinion in Puffer rejected this approach, and stated he “wouldleave application of the [totality of the circumstances] test entirely to bankruptcy judgesinstead of prescribing a rule requiring ‘special circumstances’ limited to ‘relatively rare’instances.” Id. at 85. The concurring opinion concluded that bankruptcy courts would beable to distinguish between fee only plans filed in good faith and plans that would be anabuse of the system, and determined that “the goals of Chapter 13 will be amply protectedwhen the totality of the circumstances test is thoughtfully applied, without thresholdlimitation, by bankruptcy judges.” Id. at 87–88. This concurring opinion supports theposition this Court is taking.

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analysis.60 Again, it is significant to note that the First Circuit did not have a record

before it to determine whether such “special circumstances” had been shown in the

Puffer case, but gave examples that might constitute such circumstances, such as:

showing “a pressing need for [counsel’s] services, that [the debtor] could not secure

adequate representation that he could afford without resorting to a fee-only plan, or

that it was infeasible to proceed pro se,” as well as showing a “compelling reason” why

a three-month wait to save money to pay for a Chapter 7 case would be “intolerable.”61

Myriad bankruptcy courts have also considered fee only plans and § 1325(a)(3)

challenges,62 although because of the fact intensive nature of the good faith inquiry, the

60 Id. at 83.

61 Id.

62 See, e.g., Ingram v. Burchard (In re Ingram), 482 B.R. 313, 323 (N.D. Cal. 2012)
(finding that the Bankruptcy Court did not err in denying the debtor’s confirmation as thefee-only plan eliminated unsecured debt with no repayment to unsecured creditors,
contrary to the purposes of Chapter 13); In re Rolince, No. 14-33871, 2015 WL 1321510, at
*2 (Bankr. N.D. Ohio Mar. 17, 2015) (finding that the debtor, who was ineligible forChapter 7 relief, did not file her Chapter 13 plan in good faith because the plan failed toprovide for a “repayment of pre-petition debt consistent with the debtor’s availableresources,” a fundamental purpose of Chapter 13, as it was unlikely to result in any actualpayment to her unsecured creditors and would pay only attorney’s fees and trustee fees); In
re Barnes, No. 12-06613-8-RDD, 2013 WL 153848, at *12 (Bankr. E.D.N.C. Jan. 15, 2013)
(finding that attorney fee only Chapter 13 plans are not per se bad faith, but that thedebtor’s plan, which included a provision allowing the debtor to exit Chapter 13 before thestatutorily prescribed 3 years, was in essence only a payment plan for the attorneys’ feesand was therefore not proposed in good faith); In re Platt, No. 12-6170, 2012 WL 5842899,
at *3 (Bankr. S.D. Ind. Nov. 19, 2012) (finding that while not all “fee only” Chapter 13 plansare per se filed in bad faith, the debtor had not met his heavy burden in demonstratingspecial circumstances justifying the Chapter 13 petition or plan); In re Hopper, 474 B.R.
872, 887 (Bankr. E.D. Ark. 2012) (“Debtor's actions in filing bankruptcy two days before thescheduled contempt action, and in proposing a fee-only plan that paid his creditors virtuallynothing evidences a lack of good faith.”); In re Jackson, Nos. 11-42528-JJR-13, 11-42825JJR-
13, 2012 WL 909782, at *9–10 (Bankr. N.D. Ala. Mar. 16, 2012) (finding that thedebtors’ best interests are served by seeking relief in Chapter 7, not Chapter 13, because

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outcomes vary and there is limited benefit in further discussing the decisions here. The

bottom line is that, in the Tenth Circuit—and in all the Circuit cases just discussed,

whether a plan has been proposed in good faith is a question of fact based on the

totality of the circumstances.63

In Flygare v. Boulden,64 the Tenth Circuit advised bankruptcy courts how to

“there is simply no meaningful or legitimate debt adjustment purpose to be found” andtherefore the provisions, purpose, and spirit of Chapter 13 were abused); In re Arlen, 461

B.R. 550, 555–56 (Bankr. W.D. Mo. 2011) (finding that the debtors failed to file their plan ingood faith because the plan was specifically constructed to pay no dividend to unsecuredcreditors rather than making payments for the entire applicable commitment period andthe debtors provided no evidence to rebut the argument that they would be better served bya Chapter 7 discharge); In re Molina, 420 B.R. 825, 831–33 (Bankr. D.N.M. 2009) (holdingthat a debtor who is in “economic straits,” “literally doing all that the statute requires ofher,” ineligible to file for Chapter 7, and compliant with “the letter, and the spirit, of thechapter 13 law as Congress has written it” may file an attorney fee-only Chapter 13 plan);
In re Sanchez, No. 13-09-10955MA, 2009 WL 2913224, at *1–3 (Bankr. D.N.M. May 19,2009) (finding a lack of good faith with a plan that pays only attorneys’ fees in a case wheredebtors have a history of incurring “debts they are unable to repay and then seek[ing]
bankruptcy protection every few years in order to alleviate their debt burden”); In re
Lehnert, No. 07-55988, 2009 WL 1163401, at *3–4 (Bankr. E.D. Mich. Jan. 14, 2009)
(sustaining an objection to an attorney fee-only plan as not filed in good faith because thedebtors were able to afford some dividend to creditors and a zero percent distribution tounsecured creditors did not strike the court as a good faith attempt to repay pre-petitioncreditors); In re Montry, 393 B.R. 695, 696–97 (Bankr. W.D. Mo. 2008) (“Confirming aChapter 13 plan in a case where the only benefit to a debtor—beyond the relief available inChapter 7—is the ability to pay the bankruptcy attorney’s fees over time would . . .
unnecessarily raise the cost of filing a bankruptcy petition for debtors who do not need orare ill suited for Chapter 13; and subverts the Supreme Court's holding in Lamie v. U.S.
Trustee prohibiting the payment of post-petition attorney’s fees from a debtor’s Chapter 7bankruptcy estate.”); In re Paley, 390 B.R. 53, 59–60 (Bankr. N.D.N.Y. 2008) (“The Debtorsare not adjusting anything, much less debt; they are canceling and eliminating the claimsof creditors while simply paying their attorneys. Under the theories advanced by theDebtors, carried to an absurd extreme, if they had paid their respective attorneys in full upfront, they would have proposed a plan of $0 for zero months and demanded a Chapter 13discharge. . . . These cases, basically Chapter 7 cases hidden within Chapter 13 petitions,
blur the distinction between the chapters into a meaningless haze.”).
63 Robinson v. Tenantry (In re Robinson), 987 F.2d 665, 668 (10th Cir. 1993).

64 709 F.2d 1344 (10th Cir. 1993).

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consider good faith challenges to Chapter 13 plans. The thrust of the inquiry is

“whether the plan constitutes an abuse of the provisions, purpose or spirit of Chapter

13,” judging “each case on its own facts after considering all the circumstances of the

case.”65

The Court in Flygare noted that “an important factor” in this good faith analysis

should be “the percentage of payment to unsecured creditors” proposed by the plan, but

also held that is only one of many factors courts should consider: “[o]ther factors or

exceptional circumstances might exist which would preclude a finding of bad faith even

though only a nominal repayment to unsecured creditors is proposed.”66 The Tenth

Circuit then expressed the following non-exclusive factors for determining a debtor’s

good faith under § 1325(a)(3):

(1) the amount of the proposed payments and the amount of the debtor’ssurplus;
(2) the debtor’s employment history, ability to earn and likelihood offuture increases in income;
(3) the probable or expected duration of the plan;
(4) the accuracy of the plan’s statements of the debts, expenses andpercentage repayment of unsecured debt and whether any inaccuraciesare an attempt to mislead the court;
(5) the extent of preferential treatment between classes of creditors;
(6) the extent to which secured claims are modified;
(7) the type of debt sought to be discharged and whether any such debt isnon-dischargeable in Chapter 7;
(8) the existence of special circumstances such as inordinate medical
expenses;
(9) the frequency with which the debtor has sought relief under the
65 Id. at 1347 (internal quotation marks from United States v. Estus (In re Estus),
695 F.2d 311, 316–17 (8th Cir. 1982) omitted).

66 Id. (internal quotation marks from Estus omitted).

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Bankruptcy Reform Act;

(10) the motivation and sincerity of the debtor in seeking Chapter 13relief; and
(11) the burden which the plan’s administration would place upon the
trustee.67
The weight given to each of these factors must vary, depending on the facts and
circumstances of each case.68

Relevant to the current issues under review, the Flygare court stated the
following regarding payments to unsecured creditors: “[a] per se minimum payment
requirement to unsecured creditors as an element of good faith would infringe on the
desired flexibility of Chapter 13 and is unwarranted.”69 In support of this proposition,
the Court cited a treatise on bankruptcy, stating that “[t]here is nothing in the
statutory language or the legislative history either of the Bankruptcy Act or of the
Bankruptcy Code . . . to suggest that ‘good faith’ was intended to play any role
whatever in determining the quantum of payments or dividends to be proposed by the
plan.”70

The continued viability of the Flygare factors, although not overruled, has been
questioned by subsequent Tenth Circuit cases. In Anderson v. Cranmer (In re
Cranmer),71 the Tenth Circuit noted in a footnote that the Bankruptcy Code has been

67 Id. at 1347–48 (internal quotation marks from Estus omitted).

68 Id. at 1348.

69 Id. (internal quotation marks from Estus omitted)

70 Id. at 1348 n.4 (citing 5 Collier on Bankruptcy ¶ 1325.01[c] at 1325-8.5).

71 697 F.3d 1314 (10th Cir. 2012).

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amended since Flygare was decided to include § 1325(b), and that “[s]ection 1325(b)’s
‘ability to pay’ criteria subsumes most” of the Flygare factors such that the “good faith
inquiry now has a more narrow focus.”72 The Tenth Circuit stated in Cranmer that
bankruptcy courts still need to consider “factors such as whether the debtor has stated
his debts and expenses accurately; whether he has made any fraudulent
misrepresentation to mislead the bankruptcy court; or whether he has unfairly
manipulated the Bankruptcy Code.”73 When considering the good faith analysis for that
case, the Cranmer court noted that “[i]t simply was not bad faith for [debtor] to adhere
to the provisions of the Bankruptcy Code and, in doing so, obtain a benefit provided by

it.”74

Binding precedent, therefore, requires this Court to look at the totality of the
circumstances when faced with the question of a debtor’s good faith in proposing a
Chapter 13 plan.75 And while the Flygare good faith factors have not been overruled,
they have been questioned. As a result, this Court will analyze each case with the all


72 Id. at 1319 n.5 (internal quotations omitted); see also Robinson v. Tenantry (In re
Robinson), 987 F.2d 665, 668 n.7 (10th Cir. 1993) (noting amendments to the BankruptcyCode and stating that “the relevant factors to the analysis of good faith” include “whetherthe debtor has stated his debts and expenses accurately; whether he has made anyfraudulent misrepresentations to mislead the bankruptcy court; or whether he has unfairlymanipulated the Bankruptcy Code”).

73 Cranmer, 697 F.3d at 1319 n.5 (internal quotations omitted).

74 Id. at 1319; see also Young v. Young (In re Young), 237 F.3d 1168, 1177 (10th Cir.
2001) (noting that it is not bad faith to assert rights provided under the Bankruptcy Code).

75 Flygare, 709 F.2d at 1344 (internal quotation marks omitted) (stating that goodfaith inquiry should judge “each case on its own facts after considering all thecircumstances of the case”); Cranmer, 697 F.3d at 1319 (“The good faith determination ismade on a case-by-case basis considering the totality of the circumstances.”).

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encompassing totality of the circumstances test, keeping an eye on the Flygare factors
that are relevant to each case.

C. Feasibility
The U.S. Trustee has also objected to confirmation of Debtors’ plans based on the
feasibility of each plan. Among other requirements, § 109(e) of the Bankruptcy Code
states that only “an individual with regular income” is eligible to be a debtor under
chapter 13 of the Code. Section 101(30) then defines “individual with regular income”
as an “individual whose income is sufficiently stable and regular to enable such
individual to make payments under a plan under chapter 13 of this title.” In addition,
§ 1325(a)(6) states that a court can only confirm a plan if “the debtor will be able to
make all payments under the plan and to comply with the plan.”

As above, Debtors also have the burden to demonstrate they have enough
regular income to fund a plan.76 Debtors also have the burden to establish that each
of the elements of § 1325(a) are met, including the feasibility requirement of §
1325(a)(6).77

To assess feasibility, courts first consider debtors’ income: for the Court to make
an income determination, “there must be some factual basis for the court to determine
the regularity and stability of debtor’s income[; i.e., income must be] . . . from sources

76 In re Hickman, 104 B.R. 374, 376 (Bankr. D. Colo. 1989).
77 In re Jongsma, 402 B.R. 858, 871 (Bankr. N.D. Ind. 2009).

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which are stable and regular.”78 In addition, “a debtor cannot satisfy the income
requirement for Chapter 13 eligibility by mere allegations that there is an income
potential which is contingent upon developments that appear unlikely.”79

Courts must also look at debtors’ expenses. Overall, “the bankruptcy court
should be satisfied that the debtor has the present as well as the future financial
capacity to comply with the terms of the plan. Thus, a plan is not feasible and is not
confirmable if a debtor’s income will not support the plan’s proposed payments.”80

Again, the Court must carefully parse the facts of each individual case to
properly determine feasibility. The Court is more willing to share in debtors’ optimism
that they will be able to consummate their plan, despite seemingly “slim” budgets and
low wages, when they have stable employment, when their wages are subject to a wage
withholding order,81 when they appear sincerely motivated to gain financial security
by doing what it takes over the life of the plan, and when the Court can determine that
the debtors have at least some basic budgeting skills to enable them to complete their
plans. For a plan to be feasible, debtors should also be current in plan payments and

78 In re Norwood, No. 12-23027, 2013 WL 4099834, at *8 (Bankr. D. Colo. Aug. 8,2013) (internal citations omitted).

79 Id.

80 In re Buccolo, 397 B.R. 527, 530 (Bankr. D.N.J. 2008).

81 Wage withholding orders do not give a debtor the “choice” of who to pay whencompeting bills arrive each month; the plan payment is simply deducted from their pay andforwarded by the employer to the Standing Trustee. The Standing Trustee also testifiedthat withholding orders reduce the cost of administration for his office, result in fewermotions to dismiss on this Court’s docket, and portend higher plan completion rates thancases where debtors must remember to make the payments on their own.

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should not have needed to incur postpetition debt at the time of the confirmation
hearing, since the budget should be sufficient to allow them to maintain normal
monthly living expenses. The Court also considers whether there is some evidence of
a change from negative patterns in a debtor’s past. And finally, if debtors rely on
income other than from employment (e.g., child support, part-time employment, etc.)
to meet the “regular income” eligibility standard, that other income must also be
regular and stable.

III. Analysis
A. Ellsperman, Case No. 15-40609
Debtors Michael and Ginger Ellsperman are a young couple with two children
who, prior to filing their Chapter 13 petition, had rather methodically developed a five
year plan to remedy their financial woes. First, a review of their history, and how they
came to be in their present situation. Mr. Ellsperman filed a Chapter 13 case seven
years earlier—in 2008, before Ms. Ellsperman came into the picture, but it was
dismissed without discharge in 2011.82 Now married, Mr. and Mrs. Ellsperman were
able to meet their financial obligations until the birth of their second child two years
ago. They then began having trouble keeping up with their monthly expenses,
especially when Mr. Ellsperman, a laborer who installs flooring, missed work due to
work-related injuries and incurred medical bills they were unable to pay. The

82 The prior case is Case No. 08-22027-13. Docket entries in that case show the casebegan with wage withholding, but it was when Mr. Ellsperman’s plan payment became“direct pay,” rather than through wage withholding, that he missed the payments that
ultimately resulted in the dismissal of his case.

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Ellspermans had judgments entered against them, and shortly before consulting a
lawyer, a creditor attempted to garnish their bank account. In addition, although they
were entitled to some tax refunds, taxing authorities set off those returns due to past
due state taxes.

Around this time, Mr. Ellsperman also became the power of attorney for his
mother, who suffered mental health problems; she also moved into their home. The
couple considered filing for bankruptcy in late 2014 and consulted an attorney, but
because they did not have the funds to pay the attorney the very high fees they were
quoted for filing a Chapter 7, they decided it was too expensive to file.

In early 2015, the Ellspermans received a large income tax refund of about
$8,200. The attorney with whom the Ellspermans consulted in late 2014 had advised
them to spend down their refund on necessities to further their ultimate fresh start,
and they did so. They used that refund to catch up on delinquent utility payments, buy
a larger (used) vehicle, and pay security deposits on and move into a different rental
property that was in a safer neighborhood with sidewalks and a fenced yard for their
children and included more space for their larger household.83

By mid-year 2015, however, the Ellspermans were again in financial trouble.
While they were caught up on their utilities and had enough regular income to pay
their monthly bills, they were receiving daily calls from old creditors demanding
payment. No actual wage garnishments were occurring at this time, however.

83 They also used a small portion of the refund to buy a wedding band for Ms.
Ellsperman, and no one has challenged that purchase as not being in good faith.

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At that point the Ellspermans consulted with Housing and Credit Counseling,
Inc., a very respected credit counseling provider in the area, and were advised that
bankruptcy was their only reasonable option since they had no ability to repay the past
due debt. As a result, the Ellspermans decided to consult anew with a different
attorney specializing in bankruptcy, and that attorney advised them about the various
options available to them.

Ms. Ellsperman testified about her general understanding of the differences
between a Chapter 13 and Chapter 7 bankruptcies that she learned from that
consultation and from the credit counselor. According to Ms. Ellsperman, they were
quoted a fee of $1800 to file a Chapter 7 case, and she understood this would erase
their debts and they would receive a discharge within about six months. Regarding
Chapter 13, Ms. Ellsperman testified that she understood they would be committed to
a three-year repayment plan, and that likely only attorney and trustee fees would be
paid with their plan payments. She testified that she understood that their $37,000 in
student loans would not be collected during that time, and that interest would continue
to accrue.

Ms. Ellsperman also testified that one reason they ultimately chose to seek relief
under Chapter 13 stemmed from their concern about potential new medical expenses
for Mr. Ellsperman. Mr. Ellsperman provides the main source of income for his family
and has very stable employment as a 19-year floor layer. But he also suffers the ill
effects of that profession: he has pain in his knees, back, and shoulders, and may need
knee surgery in the future. Mr. Ellsperman has a doctor’s appointment at the end of

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the month to assess the appropriate management of his knee pain.

Ms. Ellsperman, who was a very credible witness and a person very motivated
to succeed in the family’s Chapter 13, testified that she had developed a five-year
financial plan for her family. She and her husband had serious discussions about the
differences between Chapter 13 and Chapter 7 and decided that Chapter 13 was their
family’s better option. The plan is to first complete their bankruptcy in three years,
then start addressing the student loan debt and rebuilding their credit so they may
eventually achieve the American dream of buying their own home with a low mortgage
interest rate. The Ellspermans discussed waiting to file until a future tax refund was
received, likely 8 months in the future, but decided it was best to file bankruptcy
sooner to get started on their plan.84

The Chapter 13 plan proposed by the Ellspermans requires a $100 per month
payment. The Ellspermans owe $61,768 in unsecured, non-priority debts, consisting
mostly of utilities, medical debt, and student loans of about $37,000. Their plan will
pay $3150 to their attorney, the $310 filing fee, and the Trustee’s administrative fee,
and if their income doesn’t appreciably rise over the three year plan, their plan will pay
zero to unsecured creditors. The plan payment will be made directly from Mr.
Ellsperman’s paycheck, and at the confirmation hearing, the Ellspermans’ plan
payments were current.

84 The Ellspermans did not discuss assigning a future tax refund to their attorney topay for a cheaper Chapter 7 bankruptcy, and Ms. Ellsperman testified she was unsure thelogistics of doing that or whether that was even possible.

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Since filing, Ms. Ellsperman has obtained part-time employment as a sales
clerk, which helps the feasibility of the plan. The Ellspermans filed amended schedules
I and J, and these show a monthly combined income of $4103. Of this, Mr. Ellsperman
earns $2727, Ms. Ellsperman earns $585, $675 is contributed by Mr. Ellsperman’s
mother, and the Ellspermans include $116 per month from their yearly tax refund.
(The Ellspermans testified that they spent their entire 2015 tax refund prior to filing,
however, so it appears this $116 per month should not be included in assessing
whether they can make their plan payments until they become entitled to a future
year’s refund.) The amended schedule J reflects monthly expenses of $3726, leaving a
monthly excess of $377 from which the Ellspermans’ plan payment would be made. The
Ellspermans’ monthly expenses may increase when Ms. Ellsperman’s employment
hours become more stable, because at that point they intend to place their youngest
child in part-time preschool classes.

There was also testimony about the possibility that Mr. Ellsperman’s mother
may move out of the household; if that would happen, her monthly contribution of $675
would be lost. The possibility was purely speculative, however, and Ms. Ellsperman
credibly testified that if it were to happen, their expenses would also significantly
decrease, and she was unconcerned that she would be unable to balance their budget.

Marilyn Stanley, the chief operating officer of Housing and Credit Counseling,
Inc. (“HCCI”), which is located in Topeka, Kansas where these Debtors also reside and
which agency is approved by the U.S. Trustee to provide debtor education and prebankruptcy
planning, testified as an expert witness. Ms. Stanley is a certified credit

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counselor with sixteen years experience at HCCI, and is very familiar with what it
reasonably costs to live in Kansas. She testified about the options their clients have
when they come to HCCI for credit counseling. For example, a client may be interested
in a debt management plan, wherein their debt would be consolidated and a portion
repaid over time. HCCI’s debt management plans have only a 54% retention rate at
thirty six months, however, and a 13% retention rate at sixty months. Ms. Stanley
further testified that a debt management plan was not a feasible option for the
Ellspermans, because while they could keep their ongoing expenses paid with wages,
they had no additional income available to negotiate with creditors holding old debts.
Ms. Stanley determined that the Ellspermans simply had no other option but
bankruptcy: they could not borrow the funds to repay their debt and had no assets to
reasonably pledge to acquire money to repay that debt.

Ms. Stanley then reviewed the Ellsperman’s amended schedule I and J to
determine if their plan payment was feasible. Ms. Stanley noted areas where their
expenses could be reduced if it became necessary (e.g., phone and internet expenses of
$198 and $86 per month, and personal grooming of $160 per month), and determined
that even if child care costs increased, the Ellspermans’ budget appeared sound and
they would be able to make their $100 per month plan payment. Ms. Stanley also
testified that she believed the Ellspermans would be able to complete their Chapter 13
plan, citing that they are motivated, have goals in place, have the options in their
budget to make their plan work, and are knowledgeable debtors.

Finally, Ms. Stanley testified about the garnishment process in this jurisdiction.

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She testified that a garnishment, which can attach 25% of a person’s wages,85 will
typically start within a couple months of a judgment being taken. A garnishment can
also attach 100% of a person’s bank account.86 Finally, Ms. Stanley testified that if any
creditor elected to start garnishing, such garnishment would make it very difficult to
save for a Chapter 7, which on average in this area costs between $1500 to $3500 in
attorney fees.

Tim Owen, the chief financial officer for Jan Hamilton, the Standing Chapter
13 Trustee in this Division, next testified about certain statistics he compiles for that
office, including the percentage of cases closed as complete each year in this Division
since 1999. For example, in 2015, the completion rate for Chapter 13 cases in this
Division is 65.19%, compared to a national average of only 44.97%. Mr. Hamilton also
testified, stating that there is no way for his office to recognize a fee-only case without
looking at the individual plan in the case, and that his office treats fee only cases the
same as any other in their case handling system. This testimony rebutted the U.S.
Trustee’s suggestion that those cases are administratively burdensome.

The U.S. Trustee objected to confirmation of the Ellspermans’ plan, as he did to
all the cases currently under review, arguing that their plan was not proposed in good
faith under § 1325(a)(3), that they did not file their petition in good faith under §

85 See K.S.A. § 60-2310 (Kansas wage garnishment statute, which allowsgarnishment of 25% of aggregate disposable income).

86 See K.S.A. § 60-733 (Kansas statute governing garnishment of funds held byfinancial institutions).

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1325(a)(7), and that their plan was not feasible under § 1325(a)(6).87 The U.S. Trustee
also moved to convert the Ellspermans’ case to Chapter 7 based on the same
arguments.88 The Standing Trustee also objected to confirmation and moved to dismiss,
making the same arguments.89

The Court first assesses this case for good faith. While Mr. Ellsperman does
have one prior, dismissed bankruptcy case, the circumstances of that case are
sufficiently different from the present circumstances that the Court does not count this
factor against him. Mr. Ellsperman’s current case is filed jointly with his wife, and plan
payments will be made by wage withholding (compared to Mr. Ellsperman making
direct payments at the time his previous case was dismissed), so the likelihood of
success for the current case is higher. Mr. Ellsperman has had the same employment
for nineteen years, meaning his employment and income are very stable and there is
no reason to think his employment and earnings will not continue throughout his plan.

There are no inaccuracies in the Ellspermans’ schedules or listings of debt, and
no preferential treatment of particular creditors. The Ellspermans do not have any
debts they are seeking to discharge in their Chapter 13 case that would not be
dischargeable under Chapter 7 and do not owe debts to any secured or priority
creditors that they wish to modify under their Chapter 13 plan. Prior to trial, to reflect
the most accurate and up-to-date information regarding their income and expenses, the

87 Case No. 15-40609, Doc. 23.

88 Case No. 15-40609, Doc. 25.

89 Case No. 15-40609, Docs. 19 and 20.

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Ellspermans amended schedules I and J. Their budget appears healthy to the Court,
and Marilyn Stanley, who is an expert in the field of credit counseling and debt
management, so testified. The Ellspermans do not have a lavish lifestyle; they are
living modestly and making do with what they have.

Admittedly, at this point in their 3 year plan, there is no payment expected for
the Ellspermans’ unsecured creditors. But this is just one factor in the Court’s totality
of the circumstances analysis. The Ellspermans are the definition of motivated debtors:
Ms. Ellsperman credibly testified at length about her five-year financial plan. The
Ellspermans want to gain financial stability, they want to complete their bankruptcy
in three years, and they want to then address their student loan debt. They have a
sincere desire to clear their credit and save money to buy a home. Chapter 13 was a
choice they made, with the advice of counsel, to help further this plan.

The Ellspermans also fully recognize that Mr. Ellsperman may have future
medical expenses, and filing a Chapter 13 case (instead of a Chapter 7, had they been
able to afford it) gives them more options for dealing with that potential debt later.90
The Standing Trustee will not treat the Ellspermans case any differently than any
other case, and there is no evidence suggesting that the fact that this is a fee only case
will itself produce any additional burden on the system.

90 One option would be to convert to a Chapter 7 if they incur medical debts that arenot covered by health insurance and that they are unable to pay. Because such a conversionwould likely be held to be in good faith, the debts that accrued between the date of filingand conversion would be included in any discharge. See § 1307(a) (permitting conversion ofChapter 13 case to Chapter 7 by a debtor “at any time”); Nady v. DeFrantz (In re DeFrantz),
454 B.R. 108, 114 (9th Cir. 2011) (discussing bankruptcy court’s authority to consider adebtor’s good faith in converting his case from Chapter 13 to Chapter 7).

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As discussed above, good faith is an amorphous concept. There is no doubt that
the Ellspermans needed bankruptcy relief; the U.S. Trustee agrees. The Ellspermans
had been treading water with their debt since the birth of their second child, they had
judgments against them and prior set offs, and they were receiving daily calls from
creditors. Based on Ms. Stanley’s testimony, garnishments would likely follow, and
garnishments would have further impaired this family’s ability to get a fresh start (and
would have resulted in preferring one unsecured creditor over others).

The Ellspermans chose Chapter 13 bankruptcy after receiving advice of
competent bankruptcy counsel. They chose it because they could not afford the up front
attorney’s fee for a Chapter 7 case and had no way to borrow it, but they also chose it
because of their substantial student loans,91 because of their future potential medical
expenses,92 and because of the way it fit into their five-year plan. And the evidence
shows that the Ellspermans made a good choice: this Division enjoys a relatively high
Chapter 13 plan completion rate, the comparable retention rate for debt management
plans outside of bankruptcy is well below this average, and Ms. Stanley testified it
would have been impossible for the Ellspermans to save the funds for a Chapter 7, due

91 See In re Harding, 423 B.R. 568, 578 (Bankr. S.D. Fla. 2010) (discussing thetreatment of student loans in Chapter 13 bankruptcy cases, noting that student loans arenondischargeable under § 1328(a)(2), that student loans “will continue to accrue regularnondischargeable interest throughout the life of the Debtor’s Chapter 13 Plan,” and thatthe student loan creditor was prohibited from assessing penalties during the Chapter 13case because of the automatic stay).

92 See In re Crager, 691 F.3d 671, 675 (5th Cir. 2012) (discussing bankruptcy court’sfinding of the debtor’s “legitimate fear that a future medical problem might leave [thedebtor] in a situation in which she had to take on more debt and might need to file anotherChapter 13 petition”).

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to impending garnishments and the devastating impact garnishments have on a
household budget.

The Ellspermans have met the statutory requirements for a Chapter 13 case,
and there is no evidence with which this Court could question their good faith in
making the choice for Chapter 13. Based on the totality of the circumstances, the Court
cannot and does not find a lack of good faith here. Nothing in the Code required the
Ellspermans to continue to suffer daily collection calls, and even the U.S. Trustee
agrees the Ellspermans did nothing wrong except to choose Chapter 13, for which relief
they are indisputably eligible.

The Ellspermans have also met their burden to show the feasibility of their plan.
Mr. Ellsperman’s income is regular and stable, and Ms. Ellsperman has recently begun
working part-time to supplement the household budget. In addition, Mr. Ellsperman’s
mother contributes to household expenses.93 Even if their amortized tax refund is not
included in their monthly income, they have $3987 available each month to meet
current expenses of $3726 plus a $100 plan payment. Although there was testimony

93 Contributions of relatives can be considered in the feasibility analysis if there issome assurance that the contributions will continue. Compare In re Heck, 355 B.R. 813,
824–25 (Bankr. D. Kan. 2006) (declining to find “regular income” and a feasible plan whendebtor’s success depended on financing from her boyfriend and there was no evidence of hisability and obligation to continue the support) with In re Baird, 228 B.R. 324, 329 (Bankr.

M.D. Fla. 1999) (considering “payments due purely to the generosity of a close relative” tobe “stable and regular income” and reasoning that they are analogous to welfare payments).
Here, there was testimony that Mr. Ellsperman’s mother may, at some point, move toCalifornia and cease contributing to the Ellspermans’ household. But this future possibilitywas pure speculation. Ms. Ellsperman testified that if she were to stop contributing, thehousehold expenses would decrease as well, and both she and Ms. Stanley testified thatthere were options to make the budget work.
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that the Ellspermans’ expenses may increase if their youngest child is placed in part-
time preschool, both Ms. Ellsperman and Marilyn Stanley testified that there were line
items in the budget that could reasonably be reduced to accommodate any difference,
and Ms. Ellsperman testified she might be able to work more than her present part-
time hours. The Ellspermans’ plan payment of $100 per month is feasible.

The U.S. Trustee’s objection to confirmation94 of the Ellsperman’s plan is
overruled and his motion to convert95 is denied. The Standing Trustee’s objection to
confirmation and motion to dismiss96 are also denied. The Court sets the case for
confirmation on January 27, 2016.

B. Wark, Case No. 15-40558-13
Debtor Rhonda Wark suffers from hyperthyroidism and chronic obstructive
pulmonary disease but, due to the poor state of her finances, often elected not to seek
needed medical treatment prior to filing her bankruptcy because of her concern how
she would pay for that treatment. Although she was working, Ms. Wark was garnished
by her medical creditors almost the entire length of her employment, thus making it
difficult to keep her monthly expenses current. Immediately prior to filing her petition,
Ms. Wark also lost part of her wages from a garnishment by yet another creditor (from
an ancient student loan debt). Knowing she needed to see her doctors but realizing she
could not afford to pay for doctor’s visits or health insurance due to these

94 Case No. 15-40609, Doc. 23.

95 Case No. 15-40609, Doc. 25.

96 Case No. 15-40609, Docs. 19 and 20.

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garnishments, Ms. Wark sought the relief offered under the Bankruptcy Code.

Ms. Wark began working for Walmart in August 2014. Within two months, by
October, her wages were being garnished by one of her medical creditors. At this time,
Ms. Wark began to fall behind on her regular monthly bills. In addition, because Ms.
Wark could not afford health insurance on her own and was not yet eligible to receive
subsidized insurance through work, the bills for her medical treatment began to stack
up.

Ms. Wark was entitled to a tax refund of between $400 and $500 in 2014, but it
was intercepted by her student loan creditor. By April 2015, Ms. Wark was just
squeaking by, and knew she would not be able to pay for her regular doctor visits in the
future. In May, Ms. Wark’s student loan creditor began garnishing her wages based on
a ten year old debt of $1657. Ms. Wark elected to file her Chapter 13 bankruptcy after
seeing the reduction in her paycheck caused by the garnishment from that creditor.
Due to her garnishments and the need for medical care, Ms. Wark was unable to save
the money that would be needed to pay the up front fee to an attorney to represent her
in filing a Chapter 7. She had no one from whom she could borrow the funds, and she
did not believe she had the ability to file bankruptcy without the help of counsel.

After watching a video about the benefits and drawbacks of both Chapter 7 and
Chapter 13, and discussing her options with experienced counsel, Ms. Wark decided
she would most benefit from a Chapter 13 bankruptcy. Ms. Wark understood that,
under Chapter 13, she would continue to be protected from collection efforts by her
student loan creditor and would have more flexibility to handle her future medical

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costs. Indeed, Ms. Wark has already incurred post-petition medical debt due to her
illnesses.

The vast majority of Ms. Wark’s debts are medical bills, with an assortment of
other consumer debts including her student loan. In total, Ms. Wark owes about
$11,785 to her unsecured creditors. Ms. Wark does not have secured or priority
creditors as she owns no substantial personal or real property nor does she owe back
taxes. Ms. Wark anticipates a tax refund for 2015, but cannot estimate its value.

Ms. Wark earns approximately $1171 a month from Walmart. Since filing, Ms.
Wark has received a raise from $8.15 to $9.25 an hour. Ms. Wark testified that her
raise was due to her one year employment anniversary, and she anticipates she will
receive another raise in the future. At the time of filing, Ms. Wark was not eligible for
health insurance through work, but testified at trial that she now receives health
insurance through her employment that carries a $2000 yearly deductible. Ms. Wark
was not able to tell the Court exactly what amount is deducted from her wages, but
thought it to be around $40 a month.

Ms. Wark completed her schedule J (expenses) after reviewing her monthly
receipts and bills. She pays $320 a month in rent; $205 for utilities; $215 for food and
housekeeping supplies; $245 for clothing, personal care products, and entertainment;
and $25 for a monthly bus pass to get to work. Ms. Wark only budgets $50 a month for
medical costs, however, which are on the low end for her circumstances, but she
testified she is able to get some free care. At the end of the month, Ms. Wark is left
with $111 and reported at trial that she is current on all bills.

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Ms. Wark’s plan proposes to pay $90 a month for 36 months totaling $3240 for
the estate. She proposes to pay her attorney $2500 for his fees and closing costs, $310
to the Court in filing fees, and the remainder to the Standing Trustee for administering
her estate. Ms. Wark’s plan as proposed will pay nothing to her unsecured creditors.
Her plan payments come directly out of her check through an employer withholding
order and she was $13 ahead on her payments at the time of trial.

Ms. Wark has filed bankruptcy once before, roughly 30 years ago. According to
testimony at her deposition, her then husband filed a joint bankruptcy for them in
order to manage his business affairs. She did not recall any other details of the case.

The Court heard testimony from Paul Post, an experienced Topeka area
bankruptcy attorney.97 Practicing since 1974, Mr. Post recounted his experience with
debtors such as Ms. Wark and how changes in the bankruptcy laws since 1978 have
made it increasingly more complicated and more expensive for both attorneys and
debtors to navigate a bankruptcy case.

Ms. Post testified that he has filed what he considers “fee only” cases in the past.
In his experience, some cases that start out as “fee only” may not end that way due to
a new source of income discovered over the course of a plan (e.g., tax refunds,
inheritance, workers compensation, personal injury recoveries, per capita payments
from tribes, funds that become available for unsecured creditors when a secured

97 The Court notes that Mr. Post did not represent any of the Debtors involved inthese ten cases.

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claimant fails to file a claim, etc.).98

Mr. Post also testified about the practices of Topeka area collections agencies.
While Mr. Post discussed the practices of these agencies in great detail, the important
points are as follows: collections agencies in Topeka and the processes that are used
are overwhelming to attorneys representing debtors and to debtors alike, the processes
used are very unfriendly to debtors, requiring debtors to take off work to go to multiple
“cattle call” hearings a year, and the agencies in particular are extremely aggressive.
He noted that because of liberal garnishment laws in Kansas, collectors are typically
unwilling to negotiate a compromise payment less than can be received via
garnishments. Therefore, the collection practices and procedures in Topeka make it
very difficult—if not impossible—for low income debtors already threatened with
judgments and garnishments to save any money to pay counsel to represent them in
a Chapter 7 bankruptcy.

Mr. Post also discussed payment options he considers when clients cannot afford
the up front costs of his representation in a Chapter 7.99 This testimony was in
response to the overall implication from the U.S. Trustee’s position that myriad

98 By way of example, this Court very recently signed an order in In re Sachs, No.
14-41041, Doc. 40, sustaining the Standing Trustee’s motion to modify a Chapter 13 plan topay all of debtor’s claims in full after debtor received life insurance proceeds in an amountsufficient to pay all allowed unsecured claims (over $65,000). The Court acknowledges thatthis scenario is not common, but a Chapter 13 case that does not appear to provide forunsecured creditors can, and sometimes does, pay money to creditors in unexpected ways.
In this scenario, the Chapter 13 option would obviously be far better for creditors than a no-
asset Chapter 7 case.

99 Mr. Post testified that he usually charges $1500 up front for a Chapter 7 case butunderstands this amount to be “on the low end” in the Topeka area.

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attorneys are readily available to file Chapter 7 cases for low income debtors who

would have difficulty paying an up front attorney’s fee. First, Mr. Post does

occasionally agree to take an assignment of a potential tax refund to pay part of his fee,

but does so only in conjunction with a down payment of $1000 plus prepayment of the

filing fee since doing otherwise is too risky.100

Secondly, while Mr. Post has heard of attorneys taking liens on personal

property in exchange for representation, he has never spoken to someone who

commonly uses the practice. Mr. Post has only once in his 30+ years of practice taken

a lien on personal property to ensure payment of his fees and testified that he would

not care to do it again. Mr. Post also stated that pro se debtors tend to spend more

money hiring a lawyer to fix their filings than they would have spent on representation

from the start of a case.

The Court next heard testimony from the Standing Chapter 13 Trustee in

100 Tax assignments for the payment of fees are certainly an option this Court hasseen debtors use to pay attorneys. But this process is itself a gamble. For example, theCourt notes a recent case, No. 14-40844, Cain. In the Cain case, the debtor in July 2014assigned her future tax refund to her attorney for the payment of attorney’s fees for herChapter 7 case. (Doc. 4, assignment of income tax refund for 2014 tax year.) It was not untilDecember 2015 that the Court signed an order actually effectuating that payment. (Doc. 38,
Order Granting Trustee’s Motion for Authority to Allocate Federal Tax Refund andDisburse Funds to Debtor’s Counsel.) In other words, debtor’s counsel in the Cain case did
not get paid from the assignment (taken at the beginning of the case) until nearlyseventeen months after completing the work. And had that debtor not been entitled toreceive a refund, or had the refund been offset for past due child support or other taxobligations, or if the taxing authorities had refunded the money directly to the debtor (andnot to the Chapter 7 Trustee, who recognizes such assignments) and the debtor had not inturn used it to repay the debt to the attorney, the attorney might never have been paid forthe valuable services provided. These risks explain why more attorneys elect not to go this
route to secure payment.

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Topeka, Jan Hamilton. Mr. Hamilton testified that his office cannot distinguish, purely
by the numbers, a fee only case from any other case that travels through his office. As
a result, he cannot say that a fee only case causes any more (or less) administrative
work than other Chapter 13 cases. Again, this testimony was in response to the
inference made by the U.S. Trustee that these cases are administratively burdensome.
Mr. Hamilton also testified that employer pay cases greatly increase the probability
that a plan will be completed successfully and that pro se cases create the most
administrative work for his office by far—repeatedly calling pro se cases a “nightmare.”
This testimony was elicited to respond to the U.S. Trustee’s suggestion that instead of
filing her Chapter 13 cases with the assistance of experienced counsel, Ms. Wark might
have opted to file a case without representation. This, of course, is not only a really bad
idea for debtors generally, but it places a substantial burden on the Court, on its
Clerk’s Office staff, and on the Standing Trustee and his staff.101

Mr. Hamilton also noted that in addition to the significantly higher
administrative burdens pro se cases create for his office, they are rarely successful.
Finally, Mr. Hamilton testified that when he reviews a case for feasibility, a large
factor in determining whether a case, budget, or plan is feasible is the debtor’s
commitment to the process—something a cursory look at the numbers cannot disclose.

101 Courts are allocated Clerk’s Office staff based on enumerable factors, but one of
the factors is the amount of time it takes to process different kinds of cases. For Chapter 12and 13 filings, the average credit hours per filing is 3.63 for non pro se cases and 5.95 forpro se cases. In other words, the formula recognizes a 64% higher credit per filing when thefiler is self represented because it takes 64% more staff time to process these cases. Thesefigures, collected by the Administrative Office of U.S. Courts, come from time records keptby Clerk’s Office staff when the formula was derived.

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He also noted that the mere fact that a debtor has a more robust budget does not
always correlate to a successfully completed plan—a point affirmed by Mr. Post.

The U.S. Trustee also objected to confirmation of Ms. Wark’s plan, arguing that
her plan was not proposed in good faith under § 1325(a)(3), that her petition was not
filed in good faith under § 1325(a)(7), and that her plan was not feasible under §
1325(a)(6).102 The U.S. Trustee also moved to convert Ms. Wark’s case to Chapter 7
based on the same arguments.103

The Court first assesses this case for good faith and finds that under the totality
of the circumstances, Ms. Wark filed her petition and plan in good faith. While Ms.
Wark did file a previous bankruptcy 30 years earlier, due to the large time gap between
filings, the Court does not give any weight to this factor. With the exception of her
health insurance payment and hourly wage increase, which occurred post petition, the
schedules appear accurate, and the U.S. Trustee does not suggest otherwise. Ms. Wark
does not have any debts that would not be dischargeable under Chapter 7 and does not
owe debts to any secured or priority creditors that she wishes to modify under her plan.

Ms. Wark filed her bankruptcy under Chapter 13 with her eyes open. After
receiving advice from counsel, she knew she was eligible to file a Chapter 7 case but
chose instead to file her case under Chapter 13 with the understanding that it would

(1) protect her from garnishment by her student loan creditor for the pendency of her
102 Case No. 15-40558, Doc. 16.
103 Case No. 15-40558, Doc. 17.


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case; and (2) allow her more flexibility to deal with her ongoing health issues and
doctor bills. Ms. Wark knew that she could not successfully complete a bankruptcy
without representation and did not have the ability to save (or borrow) for that
representation. Even if Ms. Wark had personal property or a sizeable tax refund to
offer as security—which she did not, it is not certain that she would have found counsel
willing to accept it as payment.104

Her ongoing medical conditions coupled with up to two garnishments on her
paycheck left Ms. Wark with an unenviable choice to make every month—whether to
pay for food or pay to see a doctor. Rather than continue having to make the choice of
which basic necessity to cover, she elected to seek relief under the Code. Ms. Wark has
followed all requirements required by the statute and continues to make her required
plan payments.

The Standing Trustee testified that the fee only nature of this case does not per
se create more administrative work for his office than any other kind of Chapter 13
case. The Court does not find any evidence that Ms. Wark’s filing of her petition or plan
were an attempt to abuse the provisions, purpose, or spirit of Chapter 13 and again,
the U.S. Trustee agreed in all of these cases that each Debtor needed bankruptcy relief
and had done anything wrong. Although her unsecured creditors may receive nothing
under her plan as proposed, the Court does not find this treatment unfair or

104 Although not his burden, the U.S. Trustee certainly never offered such evidenceor the evidence that there are attorneys routinely filing cases pro bono. And this Courtalmost never sees petitions being filed by legal aide agencies, and is unaware of any lawschool sponsored pro bono bankruptcy filers in the District.

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inequitable under the circumstances, as those creditors would have received the same
under Chapter 7. In fact, any improvement in Ms. Wark’s finances could mean her
unsecured creditors might receive a dividend to which they otherwise would not have
been entitled. Ms. Wark, pressured by the financial and emotional stress of wage
garnishments and her medical conditions, made an honest and informed decision to
devote her next three years’ wages to obtain relief under the Code. Under the totality
of the circumstances, the Court finds that Ms. Wark’s case meets the requirement of
good faith.

The Court next turns to the issue of feasibility and finds that Ms. Wark’s plan
and associated budget are feasible. The evidence showed Ms. Wark’s income is
consistent and stable, and her employment appears stable as she plans to remain in
her current position. Ms. Wark recently received a raise and credibly testified that she
believes she will receive another one in the near future. Ms. Wark thus satisfies §
109(e)’s requirement that Chapter 13 filers have “regular income.”

In addition, Ms. Wark’s expenses are reasonable for a single person household
in the Topeka area. Ms. Wark testified at her deposition that she created her budget
based on a review of her receipts and has stayed current on her living expenses since
filing. While she does have a slight decrease in her take-home pay due to her health
insurance, Ms. Wark has also received an hourly wage increase and has enough
flexibility in her budget to adjust if necessary. Ms. Wark’s newly obtained health
insurance weighs heavily in favor of finding feasibility, as much of her debt consists of
medical bills, and the addition of health insurance makes it more likely that Ms. Wark

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can stay on top of her medical conditions.

Ms. Wark makes her plan payments through an employer pay order, which the
Standing Trustee testified increases the likelihood that she will be successful in
completing her plan. Additionally, Ms. Wark has the sincere motivation to maintain
her budget and commit to her plan, a factor that can make all the difference in a plan’s
success. The Court finds Ms. Wark credible and her budget reasonable in light of all
the facts, and therefore finds that her plan as proposed is feasible and satisfies the
requirement of § 1325(a)(6).

One more note. The U.S. Trustee’s position in this case would doom Ms. Wark
to living her foreseeable future in poverty, and perhaps even in unnecessary ill health.
Because she could not afford to pay a lawyer to file a Chapter 7, and because she does
not have the education or wherewithal to file her own case, the U.S. Trustee’s position
is that she must instead simply forgo receiving any bankruptcy relief until she can
afford the requisite attorney fee. But because her already very low wages were being
garnished every month, she couldn’t even afford health insurance (let alone save
money for an eventual filing), and that caused her to both avoid going to the doctor to
receive necessary preventive care, and to incur additional medical bills when she had
a health emergency. The U.S. Trustee’s position, if adopted, would mire similar debtors
in a cycle of poverty. And for what purpose? This Court cannot fathom that purpose
given that Ms. Wark is indisputably eligible to file under Chapter 13, has “done
nothing wrong” and “needs relief,” as the U.S. Trustee readily admits, and has done all
the Code requires her to do.

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Accordingly, the U.S. Trustee’s objection to confirmation105 is overruled and his
motion to convert106 is denied. The Court sets this case for confirmation on January 27,
2016.

C. Parker, Case No. 15-40655
Debtor Rachel Ann Parker is young, only a few years out of college, and already
saddled with seemingly insurmountable debt. A large portion of that debt—more than
$70,000—is comprised of student loans that the Code makes difficult to discharge.

Ms. Parker lives in a small town in Kansas, with apparently limited employment
opportunities. At the time of filing, Ms. Parker had worked as a nurse’s aide at the
local hospital for three and a half years, and reported income of $1466 per month,
which included some overtime work. She now works full-time at the local hospital, and
because the overtime she was accustomed to receiving at filing has ended, she also
works about sixteen hours per week at a local hotel. Despite the loss of overtime, with
the addition of her part-time job, Ms. Parker testified that her monthly income is about
the same as it was at filing. She is thus working very hard, but not getting ahead
financially.

Ms. Parker’s expenses are tight: she reports total monthly expenses of $1393,
so there is little remaining in her budget each month. But Ms. Parker is used to living
within these limited means. For example, her monthly rent of $368 includes an

105 Case No. 15-40558, Doc. 16.
106 Case No. 15-40558, Doc. 17.


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electricity and water allowance. Any overage of that electricity amount must be paid
by her directly, and when this happens, she cuts back on other expenses so she can pay
the overage.107 Ms. Parker’s food budget is also very low, at $150 per month, but she
is able to eat for free at her grandmother’s house several times a week and that reduces
her costs. She budgets zero dollars each month for entertainment, although she
budgets $250 per month for cable and internet.

Ms. Parker ultimately filed for bankruptcy due to harassing collection calls from
her creditors. Although she had no garnishments at the time of filing, her creditors
were threatening lawsuits and trying to collect from her. Ms. Parker was anxious about
her student loan debt, and what would happen if the student loan creditors
aggressively sought repayment. Ms. Parker takes medication to control anxiety, and
her debt load was negatively impacting this medical issue.

Ms. Parker also testified that she filed for bankruptcy because her estranged
parents were threatening to sue her. Ms. Parker’s parents had, unbeknownst to her,
kept a list of all the funds they had given her while she was in college from 2008
through 2012—down to the cost of a pair of shoes. In March 2015, their attorney sent
her a demand letter for $10,474, seeking $200 per month repayment. Ms. Parker
disputes that she owed her parents this money and indicated she did not have the

107 For example, Ms. Parker budgets $150 for medical expenses. Ms. Parker hasongoing medical issues; she has had anxiety and depression for years, and relies onmedicine to keep her symptoms under control. Fortunately, Ms. Parker has medicalinsurance through her employment. Her monthly prescription costs are $75, and she has a$25 co-payment for a doctor’s office visit a couple of times a year. As a result, many monthsher medical expenses are not as high as budgeted.

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money to repay them even if she did owe it.

As of the time she filed her petition in June 2015, Ms. Parker’s parents had not
yet sued her for the alleged debt, but Ms. Parker has limited other family support,
aside from her grandmother. She no longer has a relationship with her parents or
brothers. Ms. Parker does have a relationship with one aunt, but this aunt cannot help
her financially because she is also in bankruptcy. As a result, Ms. Parker could not
borrow the money needed to pay attorney’s fees for filing a Chapter 7 bankruptcy
petition.

Ms. Parker also has no assets to sell or offer for a lien to raise funds to pay fees.
She does have a vehicle—a 2008 Pontiac Grand Prix in good condition, but it was
purchased with a down payment from her grandmother and a loan from Farmers State
Bank on which her grandmother co-signed. Ms. Parker wants to protect her co-signor
grandmother on this secured debt. The vehicle is worth about $8750; Ms. Parker still
owes $6074 and she is current on her monthly payments. Other than this secured debt,
Ms. Parker’s debt consists of payday loans, bad check charges, medical bills, and the
above-mentioned family debt and student loans, for a total of $91,352 in unsecured,
non-priority debts. Ms. Parker also has one small unsecured priority debt of
approximately $230 to the Internal Revenue Service, which means that any tax refund
to which she might be entitled could be offset—removing the illusory pot of gold that
the U.S. Trustee suggests all these Debtors should use to pay for a Chapter 7 attorney.
Finally, Ms. Parker has no prior bankruptcy cases.

Ms. Parker testified that she considered a Chapter 7 bankruptcy, and one reason

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she did not choose that option was she could not afford the up front cost of an attorney.
She credibly testified she could neither save up or borrow the money for a Chapter 7.
Ms. Parker testified about her understanding of the differences between Chapter 13
and Chapter 7, especially in relation to her student loans. If Ms. Parker filed for
Chapter 7 relief, she could discharge her non-student loan debt and start over, but her
student loan creditors could then immediately start collection attempts again. In a
Chapter 13, Ms. Parker’s student loan debts will be held at bay while she is within her
plan. Ms. Parker was in default on her student loans at the time of filing, and her goal
is to get in good standing with the student loans so she can qualify for the income
based repayment plan. Since filing, Ms. Parker has made a couple of payments in an
effort to get in good standing, but apparently has not consistently done so.

Ms. Parker also testified that she hopes, towards the end of her Chapter 13 case,
to file an adversary proceeding seeking to demonstrate that repayment of these student
loans would constitute an undue hardship if her employment and health situations do
not improve.108 Ms. Parker credibly testified that she had a sincere desire to have her
Chapter 13 plan succeed so she can get a fresh start, and so she will be in a better
position to deal with her student loans.

Ms. Parker’s proposed plan will require a $73 per month payment for 49 months.
Her plan will pay $2948 in attorney’s fees, the Trustee’s administrative fee, and $232
to the IRS. (Ms. Parker’s debt on her 2008 Pontiac will be paid directly, at $199 per

108 See § 523(a)(8) (generally excluding educational loans from discharge, unlessdoing so creates “an undue hardship on the debtor and the debtor’s dependents”).

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month.) As proposed, Ms. Parker’s plan will pay zero to her unsecured creditors. Ms.
Parker makes her plan payment via wage withholding from her employer. Her account
shows a delinquency of $89, but the employer has withheld the funds to provide to the
Standing Trustee, and the parties stipulated that Ms. Parker is thus effectively
current. Ms. Parker also testified that she is current on all her monthly bills since
filing, and that she has acquired no new debt.

Tim Owen, the chief financial officer for Jan Hamilton, the Standing Chapter
13 Trustee in this Division, also testified in this case about certain statistics he
prepared. Mr. Owen noted the national average completion rate for Chapter 13 cases
of 44.97% in 2015, compared to the completion rate for Chapter 13 cases in this
Division of 65.19%. Mr. Hamilton then testified that fee only cases cause no additional
time or burden for his office compared with other cases, and that he would not be able
to identify fee-only cases without looking at individual plans. Again, this is in response
to the U.S. Trustee argument inferring these cases to be administratively burdensome.
To compare, Mr. Hamilton testified that pro se cases require significantly more
administrative time for his office, and that pro se Chapter 13 cases are rarely
successful.

The U.S. Trustee also objected to confirmation of Ms. Parker’s plan, arguing that
the plan was not proposed in good faith under § 1325(a)(3), that the petition was not
filed in good faith under § 1325(a)(7), and that Ms. Parker’s plan was not feasible

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under § 1325(a)(6).109 The U.S. Trustee also moved to convert Ms. Parker’s case to
Chapter 7 based on the same arguments.110

The good faith analysis, as consistently done throughout, encompasses the
totality of the circumstances surrounding Ms. Parker’s case. There are no inaccuracies
in Ms. Parker’s schedules111 or listings of debt, and no preferential treatment of
particular creditors. Ms. Parker does not have any debts she is seeking to discharge in
her Chapter 13 case that would not be dischargeable under Chapter 7 and does not owe
debts to any secured or priority creditors that she is proposing to modify in her plan.
Ms. Parker has no prior bankruptcy cases, her income has been steady and regular for
the last three years, and when the overtime connected with her full-time job decreased,
she voluntarily started a part-time job to supplement that income. This is not the
picture of a person trying to game the bankruptcy system, and again, the U.S. Trustee
admits she has done nothing wrong other than to elect to proceed under Chapter 13.

Rather, Ms. Parker is in need of bankruptcy protection—another fact the U.S.
Trustee readily admits. Like many Americans,112 Ms. Parker is saddled with very high

109 Case No. 15-40655, Doc. 20.

110 Case No. 15-40655, Doc. 21.

111 Part of Ms. Parker’s income has changed from overtime to her part-timeemployment, but Ms. Parker testified that her total monthly income remains about the
same.

112 See Meta Brown et al., Student Debt Growth and the Repayment Progress of
Recent Cohorts, 23 Am. Bankr. Inst. L. Rev. 331, 333 (Winter 2015) (describing the growthof student loan debt in the United States—it has “tripled, from $364 billion in 2004 to $1.08trillion in 2013”—and the repayment progress on that debt).

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student loans compared to her earning potential. She has payday loans and old medical
bills, and her parents had recently started attempting to collect on the support they
gave her while in college.

In short, Ms. Parker needs the relief of the bankruptcy system. She suffers
anxiety, and is worried about the collection activities of her creditors. Like all the
Debtors herein, Ms. Parker credibly testified she could not afford the up front
attorney’s fee to file a Chapter 7 case, and she had no reasonable chance of acquiring
those funds. She had no family or friends from whom she could borrow the money,
received no large income tax refund that she could have used to pay for an attorney (if
she wanted to wait 8 or 9 months, before the next cycle of refunds might be received),
and had no unencumbered assets to pledge for repayment of such fee.

Although the U.S. Trustee opines Chapter 7 is a better option for Ms. Parker,
the fact is that Chapter 13 is a reasonable and statutorily available option for Ms.
Parker, and she chose it based on her circumstances and on advice of counsel. She will
benefit from a three-year respite from the collection efforts of her student loan
creditors,113 and she will be able to discharge significant other debt that is troubling
her. And during the time she is within her plan, she can work to bring herself out of
default on those student loans, so that she can qualify for the income based repayment

113 See In re Harding, 423 B.R. 568, 578 (Bankr. S.D. Fla. 2010) (discussing thetreatment of student loans in Chapter 13 bankruptcy cases, noting that student loans arenondischargeable under § 1328(a)(2), that student loans “will continue to accrue regularnondischargeable interest throughout the life of the Debtor’s Chapter 13 Plan,” and thatthe student loan creditor was prohibited from assessing penalties during the Chapter 13case because of the automatic stay).

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program.114 She can also then pursue a discharge of the student loans based on an
undue hardship, if circumstances then existing justify it.

Absent some change in her circumstances, Ms. Parker’s unsecured creditors will
receive no distribution in this plan as proposed.115 But the Standing Trustee will
expend no additional effort in Ms. Parker’s case just because it is proposed as fee only;
on the other hand, he would expend significantly more effort if Ms. Parker had opted
to go it alone and file her Chapter 13 case pro se as the U.S. Trustee seems to suggest
is a viable option for these Debtors. A zero distribution to unsecured creditors does not
alone mean Ms. Parker’s plan was not filed in good faith. The balance of factors shows
that Ms. Parker has not “unfairly manipulated the Bankruptcy Code.”116 Ms. Parker
has carried her burden to show that her plan “was proposed in good faith and not by
any means forbidden by law.”117

Ms. Parker has also met her burden to show the feasibility of her plan. Ms.
Parker’s income has been regular and stable for the last several years. Her monthly
income is about the same as it was at filing, at $1466 per month. Admittedly, this is

114 See Abney v. U.S. Dep’t of Educ. (In re Abney), No. 15-60501, 2015 WL 6962925,
at *4–5 (Bankr. W.D. Mo. Nov. 10, 2015) (describing the Department of Education’s income-
based repayment program; stating that if a debtor is in default on their student loans, theymust first rehabilitate the loans by making nine voluntary payments based on their incomelevel, but no less than $5, before becoming eligible for deferments, forbearances, or theincome-based repayment program).

115 See note 98 supra.

116 Cranmer, 697 F.3d at 1319 n.5.

117 § 1325(a)(3).

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low. But Ms. Parker is a single woman living in a small town with a seemingly lower
cost of living, with equally low expenses of $1393 per month and a $73 per month plan
payment. She lives in subsidized housing, eats many of her meals at her grandmother’s
home, and uses her entertainment “funds” each month solely on cable and internet.
Ms. Parker is also used to allocating money based on her particular bills because of the
set up of her rent and electricity payment. Ms. Parker is current on her monthly bills
and has taken on no new debt. In short, Ms. Parker has carried her burden to show
that she will be able to make all her payments under her plan.

Like with Ms. Wark, the prior Debtor, the U.S. Trustee’s position would
inexplicably require Ms. Parker, who already suffers anxiety, to continue to endure
stressful collection activity against her for an unknown period of time, when it is clear
she needs bankruptcy relief, and when she has done all the Code requires her to do.
Accordingly, the U.S. Trustee’s objection to confirmation of Ms. Parker’s plan118 is
overruled. The U.S. Trustee’s motion to convert119 is denied.

D. Blacksmith, Case No. 15-40641
This case is Nichol Blacksmith’s second bankruptcy in two years. The
circumstances triggering her previous bankruptcy mirror those prior to her current
case, and illuminate the financial burden she faced. Ms. Blacksmith’s financial distress
began in 2008. First, her car was repossessed and she was garnished for the deficiency

118 Case No. 15-40655, Doc. 20.
119 Case No. 15-40655, Doc. 21.


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after that creditor refused to consider a payment arrangement with her. Ms.
Blacksmith was then seriously injured in a car accident in 2011 and forced to leave the
workforce for two years to recover.

Fast forward to 2014. Ms. Blacksmith had fully recovered from her injuries and
was able to return to work. Immediately upon finding reemployment, however, Ms.
Blacksmith was garnished yet again for the deficiency on her repossessed vehicle and
additionally for payments she missed on her furniture while she recovered. Her
creditors also used garnishments to empty her small bank account. Ms. Blacksmith’s
only daughter had to move out of her mother’s house and in with her father because
Ms. Blacksmith could no longer afford to support her full-time. Although she had
steady income as a cashier, Ms. Blacksmith was unable to save and unable to borrow
the requisite funds to pay for representation in Chapter 7.

As she had just returned to work, Ms. Blacksmith did not anticipate receiving
a tax refund large enough to satisfy an up front payment to any attorney (even if she
could reasonably wait until the next return filing/refund cycle), nor did she have any
substantial personal property to offer as collateral for repayment. Instead, like all
these Debtors, she elected to pay her attorney’s fees through her plan when she filed
her first Chapter 13 case.

Ms. Blacksmith’s first case had a plan payment of $70 a month and was paid
through an employer withholding order. During the pendency of her first case, Ms.
Blacksmith lived with her sister, her sister’s three children, and their father, and
contributed to the household finances as best she could. Unbeknownst to her, Ms.

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Blacksmith’s sister fell behind on the electric bill and the house was eventually
threatened with a utility shut off. Faced with the choice of making her plan payment
or keeping the lights on for herself and her family, Ms. Blacksmith missed her plan
payment and her case was dismissed in March 2015. Ms. Blacksmith also lost her job
at that time.

Thankfully, within three weeks after her termination, Ms. Blacksmith found a
better paying job. But as soon as she began work, her paychecks were again garnished
by 25%. Again she was unable to make ends meet. She credibly testified that it would
have taken months, if not a year, to save up to pay for Chapter 7 representation. Thus,
Ms. Blacksmith filed her second Chapter 13 bankruptcy.

Ms. Blacksmith’s debts consist of student loans, medical bills, title loans,
utilities, and other various consumer debts such as furniture rentals and credit cards.
In total Ms. Blacksmith owes $42,390 in unsecured debt. Ms. Blacksmith lists the IRS
and Kansas Department of Revenue as priority unsecured creditors, though the
amounts owed to each are unknown.

Ms. Blacksmith has worked for her current employer for eight months and will
likely receive a promotion once she finishes a course being offered by her employer that
will qualify her to train new hires.120 Including tax and domestic support deductions,
Ms. Blacksmith nets approximately $1470 a month through her employment. Ms.

120 Amended schedules filed November 24, 2015 (Case No. 15-40641, Doc. 81,
Debtor’s Ex. 13) reflect that she may already have received the raise by the time thisOpinion was written.

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Blacksmith also receives $400 a month (or $1200 a quarter) in income from her house
mate, totaling $1870 a month in household income.

The Court heard testimony from the Standing Chapter 13 Trustee in Topeka,
Jan Hamilton. Mr. Hamilton testified that while the national completion rate for
Chapter 13 plans was 44.97% in Fiscal Year 2015, the Topeka Division’s completion
rate was above 65%. The Court also heard testimony from a certified budget expert
regarding Ms. Blacksmith’s budget. Marilyn Stanley, the chief operating officer of
HCCI also testified in this case.121 Again, Ms. Stanley testified about the options her
clients have when they come to HCCI for counseling, including a debt management
plan, wherein a customer’s debts are consolidated and a portion repaid over time.
Compared to a 65.19% completion rate of Chapter 13 cases in Topeka, HCCI’s debt
management plans have a 54% retention rate at thirty six months and a 13% retention
rate at sixty months. Even more importantly, Ms. Stanley testified that a debt
management plan was not a feasible option for Ms. Blacksmith as she did not have
enough excess monthly income with her garnishment in place to negotiate with the
creditors holding the old debt. Ms. Stanley also determined that Ms. Blacksmith had
no other option but bankruptcy: she could not borrow the funds to repay her creditors
and had no available assets to pledge to pay an attorney or acquire the funds to do so.

According to Ms. Stanley, Ms. Blacksmith’s budget is reasonable for a two
person household in the Topeka area. Supporting herself and her boyfriend, Ms.

121 A summary of Ms. Stanley’s impressive expert qualifications is discussed abovein the discussion on the Ellsperman case.

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Blacksmith spends $325 a month on rent and $210 on utilities, which includes her
phone and internet. Her food budget is slim at $365, although Ms. Stanley regards this
as a reasonable amount for two people. Ms. Blacksmith also budgets $15 a month for
any additional expenses when her daughter stays with her during weekends, which is
on top of the child support she pays each month.

Ms. Stanley also testified that Ms. Blacksmith’s medical budget is low for her
circumstances. After the filing of her case, Ms. Blacksmith broke her ankle and her
recovery may cost between $1400 and $4000 in out-of-pocket expenses. However, Ms.
Blacksmith has not had to miss work and dedicates $150 a month for her medical
expenses. While reviewing her budget, Ms. Stanley noted that Ms. Blacksmith has
comfortably budgeted in other areas such as entertainment and personal grooming,
and having these relatively higher expense amounts in the budget may allow her to
devote more income to medical expenses, if necessary.

Ms. Stanley also testified about the garnishment process in this jurisdiction. She
testified that creditors will start garnishing wages and bank accounts within a couple
months after a judgment is entered, but a wage garnishment can only be enforced if
the debtor is working. Statutorily, a garnishment can consume up to 25% of a person’s
wages122 and 100% of a person’s bank account,123 as Ms. Blacksmith experienced in
2014. Finally, Ms. Stanley testified that a garnishment would make it very difficult to

122 See K.S.A. § 60-2310 (Kansas wage garnishment statute, which allowsgarnishment of 25% of aggregate disposable income).).

123 See K.S.A. § 60-733 (Kansas statute governing garnishment of funds held byfinancial institutions).

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save funds for representation in a Chapter 7, which typically costs around $1800.

Ms. Blacksmith’s plan proposes to pay $80 a month for the required applicable
commitment period. Ms. Blacksmith makes her plan payments through an employer
withholding order, she is $12 ahead on her plan payments, and is current on her
postpetition living expenses.

The U.S. Trustee objected to confirmation of Ms. Blacksmith’s plan as he did in
all these cases, arguing that the plan was not proposed in good faith under §
1325(a)(3), that the petition was not filed in good faith under § 1325(a)(7), and that Ms.
Blacksmith’s plan was not feasible under § 1325(a)(6).124 The U.S. Trustee also moved
to convert this case to Chapter 7 based on the same arguments.125 The Standing
Trustee also objected to confirmation of Ms. Blacksmith’s plan and filed a motion to
dismiss her case.126

The Court first assesses this case for good faith and finds that under the totality
of the circumstances, Ms. Blacksmith filed her petition and plan in good faith. While
this is not Ms. Blacksmith’s first case, the circumstances surrounding her previous
delinquency and subsequent dismissal are no longer present. The Court finds Ms.
Blacksmith’s explanation for her prior delinquency—that she lost her job and had to
pay her sister’s electricity bill—sufficient to explain her circumstances. There is no
evidence these circumstances are likely to recur.

124 Case No. 15-40641, Doc. 29.

125 Case No. 15-40641, Doc. 30.

126 Case No. 15-40641, Docs. 26 and 27.

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The Court also finds Ms. Blacksmith to be sincerely motivated to succeed based
on the short gap between her employment. She has demonstrated her eagerness to
keep her current job by training for a new position—a position that would carry
increased responsibility and compensation. In addition, Ms. Blacksmith has since
moved out of her sister’s home and is now responsible for only her own budget. Ms.
Blacksmith understands that any significant increase in her disposable income may
lead to a higher plan payment and distribution to her creditors. Ms. Blacksmith’s
petition and schedules are accurate to the best of her knowledge, she has no secured
creditors, owes an unknown amount of back taxes to the IRS and the Kansas
Department of Revenue as priority creditors, and does not have any debts that would
not be dischargeable under Chapter 7.

Ms. Blacksmith did consider filing for a Chapter 7. Due to her wage
garnishments and inability to borrow, however, Ms. Blacksmith determined that she
would be better off being represented by counsel in a Chapter 13 bankruptcy.
Considering the testimony of the Standing Trustee, it is likely that had Ms. Blacksmith
attempted to navigate her Chapter 13 bankruptcy without the assistance of counsel,
she may not only have been unsuccessful, but may also have prejudiced herself in other
ways. The Standing Trustee also testified that cases such as Ms. Blacksmith’s cause
his office no more administrative work than the average Chapter 13 case.127 Since filing

127 Mr. Hamilton testified, during cross examination by the U.S. Trustee, that theaverage cost per case for his office is between $400 and $500 a year, totaling anywherebetween $1200 and $2500 per case. Mr. Hamilton also testified that the Standing Trustee'sfee on a plan that hypothetically pays $80 a month for 36 months ($3100 total) would be

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her Chapter 13 plan, Ms. Blacksmith has incurred additional medical debt due to her
fractured ankle and is grateful for the continued protection of the automatic stay while

she heals.128

The Court must decide whether, under the totality of the circumstances, Ms.
Blacksmith abused the provisions, purpose, or spirit of Chapter 13. Ms. Blacksmith is
an honest but unfortunate debtor who even the U.S. Trustee admits has done nothing
wrong other than choosing to obtain bankruptcy relief by filing under Chapter 13 upon
advice of counsel. She fell behind on her bills while out of work for several years and
could not catch up and maintain her living expenses once she eventually went back to
work. Her absence from the work force was not a choice, but a necessary condition of
her recovery from an auto accident.

While her proposed plan fails to pay any dividend to her unsecured creditors,
Ms. Blacksmith is devoting her next three to five years’ worth of wages in an effort to
allow her unsecured creditors to take part in any increased income she may receive.

less than $310—well below the total average cost for his office to administer the case. Notestimony was elicited to show how the cost of administering fee only cases compares to thecost of administering an "average" case. The Court assumes the U.S. Trustee pursued thisline of questioning to support his argument that fee only cases are burdensome on theStanding Trustee's office because his office must do the same work for less pay. But theStanding Trustee disagrees fee only cases are more burdensome on his staff, probablybecause the point the U.S. Trustee makes relates to all low dollar cases, not just fee onlycases. Because the U.S. Trustee did not develop this argument fully, however, and as theCourt must evaluate this factor alongside many others, the Court affords it little weight.

128 See In re Crager, 691 F.3d 671, 675 (5th Cir. 2012) (discussing bankruptcy court’sfinding of the debtor’s “legitimate fear that a future medical problem might leave [thedebtor] in a situation in which she had to take on more debt and might need to file anotherChapter 13 petition”).

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Having returned to work, Ms. Blacksmith will likely receive a larger tax return for
2015 and understands a portion of this or future tax refunds, if not exempt, might have
to be turned over for distribution to her creditors. Ms. Blacksmith has followed all
requirements of the Code and continues to make her plan payments as mandated.
Under the totality of the circumstances, the Court does not find that Ms. Blacksmith’s
motivation or purpose for filing her bankruptcy was to abuse the Bankruptcy Code, but
instead, she demonstrated a sincere motivation to complete her Chapter 13 plan and
solve her financial situation. Again, even the U.S. Trustee admits she needs
bankruptcy relief, and the undisputed testimony shows that filing this Chapter 13
bankruptcy was the only reasonable way for her to get timely relief.

The Court next turns to the issue of feasibility and finds that Ms. Blacksmith’s
plan, with its associated budget, is feasible in light of the facts presented at trial. Ms.
Blacksmith’s income has been consistent and stable for the last eight months. Ms.
Blacksmith, therefore, satisfies § 109(e)’s requirement that Chapter 13 filers have
“regular income.” As stated above, Ms. Blacksmith has shown her intent to continue
her employment by voluntarily taking on more responsibility at her job.

Ms. Stanley, a budgetary expert, testified that Ms. Blacksmith’s budget is
reasonable. Although her food budget is low, the remaining budget categories are
suitable for a household size of two and remain flexible in light of the potential
increased cost of her medical expenses. Ms. Blacksmith credibly testified that she does
not believe she will have trouble maintaining her plan payments; the Court agrees and
finds her plan as proposed feasible.

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The U.S. Trustee’s objection to confirmation129 is overruled and his motion to
convert130 is denied. The Standing Trustee’s objection to confirmation and motion to
dismiss131 are also overruled and denied. Confirmation of Ms. Blacksmith’s plan is
continued to January 27, 2016.

E. Tinkham, Case No. 15-40654
Debtor Christine Tinkham had a hard time keeping current on her utilities, and
as a consequence, in mid-May 2015 her gas service was shut off. In addition, while Ms.
Tinkham—a single mother of her thirteen year old daughter—has medical insurance
for herself through her employment, she does not have insurance for her daughter, and
past medical bills were catching up to her. Ms. Tinkham is caught in a not uncommon
dilemma: she has a good job and makes too much for state-provided insurance for her
daughter, but does not make enough to afford the $500 per month premium to add her
daughter to her employer’s insurance plan.

As a result of both the shut off of her gas service and her daughter’s medical
bills, Ms. Tinkham filed her first bankruptcy. Ms. Tinkham was quoted an attorney fee
rate of $1800 to file a Chapter 7 case. She testified that it would have taken her at
least a year to save that much money. And because her typical tax refund is about
$500, it would have taken her several years of saving her refunds to make that $1800
payment. Ms. Tinkham testified that she chose Chapter 13 (instead of filing a Chapter

129 Case No. 15-40641, Doc. 29.

130 Case No. 15-40641, Doc. 30.

131 Case No. 15-40641, Docs. 26 and 27.

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7 case) because of the up front fee for a Chapter 7 case, but also because she would like
to get the bankruptcy off her credit report as soon as possible, and that she
understands that a Chapter 13 would be on a credit report for only seven years,
compared to a Chapter 7 case that would be reflected on her credit report for ten

years.132

Ms. Tinkham also testified that she felt the higher attorney’s fee for the Chapter
13 case was fair, as it involved her attorney’s management of her case for three years,
and involved higher risk for her attorney because of the need for her to stay employed
throughout the case, and make plan payments, for her attorney to be paid. Finally, Ms.
Tinkham filed a Chapter 13 case instead of a Chapter 7 cases because of her daughter’s
lack of health insurance, and her fear of unknown, future medical bills.

Ms. Tinkham has been employed at a vision clinic since 2007, and is paid $17.87
per hour, netting $2408 per month from her employment. Ms. Tinkham’s income is also
supplemented by Social Security payments her daughter receives after the death of her
father, at $920 per month, for a total monthly income of $3328. Ms. Tinkham’s
schedule J shows monthly expenses of $3155, leaving her an excess of $173 each
month. Ms. Tinkham’s budget appears healthy; she budgets only $450 for month for
food for her household, but she testified that this amount was comfortable for her
family. Ms. Tinkham has taken on no new debt while within bankruptcy, and she is

132 Under 15 U.S.C. § 1681c, Chapter 7 bankruptcies remain on a credit report for 10years from the date the bankruptcy was filed. § 1681c(a)(1). Completed Chapter 13bankruptcies remain on a credit report for 7 years from the date filed, but remain for 10years if not completed. § 1681c(a)(4).

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current on all her monthly expenses.

Although the schedules filed with her bankruptcy list her unsecured, non-
priority debt at only $4821, Ms. Tinkham testified that her actual debt is closer to
$15,000 and that she needs to amend her schedules to add debt she incurred while she
was living in another state. She noted she had had difficulty assembling documents
for the out of state debts, and indicated the debt she had scheduled represented
medical bills, check fees, personal loans, and school fees. Ms. Tinkham has one
unsecured, priority debt for state taxes, but the amount is small, only about $150. She
has no secured debt.

Ms. Tinkham’s plan payment is $110 per month, and is deducted directly from
her paycheck by her employer. The Standing Trustee shows that Ms. Tinkham is
delinquent for one plan payment, but Ms. Tinkham testified that all payments had
been withdrawn from her paycheck, and the parties agreed (as frequently happens at
the beginning of these cases, and with employers not used to the bankruptcy process)
that the delinquency was probably the result of the employer having not yet submitted
the payment to the Standing Trustee. Ms. Tinkham’s plan will pay the Standing
Trustee’s administrative fee, her $3100 attorney’s fees, and the $310 filing fee.

The parties stipulated to admission of the full testimony from the Parker case,133
including all objections that were made to that testimony concerning relevance, from
Tim Owen, the chief financial officer for Jan Hamilton, the Standing Chapter 13

133 Case No. 15-40655.

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Trustee in this Division. Mr. Owen testified about certain statistics he prepared, and
noted the national average completion rate for Chapter 13 cases of 44.97% in 2015,
compared to the completion rate for Chapter 13 cases in this Division of 65.19%. Mr.
Hamilton also testified that employer pay cases have a greater success rate than those
where the debtor must send a monthly check because the debtor has no choice whether
to use the money to pay the plan payment or another bill, and thus the Trustee
payment is made a priority. Mr. Hamilton further testified that employer pay cases are
easier for his office to administer.

Mr. Hamilton also testified about his office’s treatment of fee only cases, noting
that fee only cases cause no additional time or burden for his office simply by being fee
only, and that he would not be able to identify fee only cases without looking at
individual plans. To compare, Mr. Hamilton testified that pro se cases require
significantly more administrative time for his office, and that pro se Chapter 13 cases
are rarely successful. In response to this line of questioning, the Court also took
judicial notice, without objection by any party, that bankruptcies filed by debtors pro
se cause more work for the Court and Court staff. And finally, Mr. Hamilton testified
that simply because a Chapter 13 case starts as fee-only, does not mean that ultimately
there will not be a dividend for unsecured creditors.134

The U.S. Trustee objected to confirmation of Ms. Tinkham’s plan as he did to all
these cases, arguing that her plan was not proposed in good faith under § 1325(a)(3),

134 See note 98 supra.

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that her petition was not filed in good faith under § 1325(a)(7), and that her plan was
not feasible under § 1325(a)(6).135 The U.S. Trustee also moved to convert Ms.
Tinkham’s case to Chapter 7 based on the same arguments.136

The Court first assesses Ms. Tinkham’s petition and plan for good faith. Ms.
Tinkham has filed no prior cases, she does not have any debts that she is attempting
to discharge in Chapter 13 that would not be dischargeable under Chapter 7, and she
does not owe debts to any secured or priority creditors that she is proposing to modify
in her plan. Ms. Tinkham is not treating one class of creditors better than another.
Ms. Tinkham is planning to amend her schedules to list additional debt that she
inadvertently did not list at filing, but otherwise there are no inaccuracies on her
schedules or petition.

Ms. Tinkham’s income has been steady and regular for a number of years, as she
has worked for the same employer since 2007 and makes a good salary. Most of her
debt is old, and exists from before she moved to this area. Her current trouble stems
from her inability to keep up with that old debt and also stay current on her utilities.
She lived with no gas service for six weeks—more than many people would
endure—before consulting an attorney about filing bankruptcy. The U.S. Trustee,
again, agrees she needs bankruptcy relief and that she has done nothing wrong other
than choosing to file Chapter 13 when she had no ability to pay for the filing of a

135 Case No. 15-40654, Doc. 18.
136 Case No. 15-40654, Doc. 19.


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Chapter 7.

Ms. Tinkham very credibly testified that there was simply no way she could
have afforded the up front fee required to hire an attorney to file a Chapter 7 case, and
this is one reason she chose Chapter 13 relief. Ms. Tinkham also made a tactical
decision: her daughter has no health insurance, and Ms. Tinkham worried about the
potential for future medical bills because of that. In addition, she believed it would be
better long-term to have her bankruptcy off her credit report as soon as possible.

Ms. Tinkham’s budget appears healthy, and she again was credible when she
testified that she is committed to the Chapter 13 process and to doing what she needs
to complete her case and receive a discharge. Mr. Hamilton testified that fee only cases
like Ms. Tinkham’s cause no additional administrative burden for his office. Because
Ms. Tinkham’s plan payment will be made by employer payment, Mr. Hamilton
believes it will have a greater chance of success and be easier for his office to
administer. Simply put, there appears to be no obstacle to Ms. Tinkham’s success in
this case.137 And although Ms. Tinkham’s unsecured creditors may receive no
distribution, this factor alone does not tip the balance of factors, and the Court sees no
evidence at all that Ms. Tinkham’s petition and plan were not filed in good faith.

Ms. Tinkham’s case is also feasible. Her net income from employment is $2408
per month, and her daughter also receives $920 per month in Social Security, making

137 And the Court notes that statistical evidence presented demonstrates that manyof the Chapter 13 cases in this District are successful, much more so than the nationalaverage for such cases.

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her total monthly income $3328. With monthly expenses of $3155, she has $173 each
month from which to make her $110 plan payment. Ms. Tinkham’s budget is
comfortable for her family and appears reasonable to the Court. Ms. Tinkham has
taken on no new debt and is current on all her monthly bills. The Court is concerned
about Ms. Tinkham’s daughter not having health insurance, but because of some
wiggle room in Ms. Tinkham’s budget,138 this concern is abated. Ms. Tinkham has
easily met her burden to show feasibility under § 1325(a)(6).

The U.S. Trustee objection to confirmation139 is overruled and his motion to
convert140 is denied.

F. Neu, Case No. 15-40647
The circumstances precipitating debtor Jacob Neu’s bankruptcy were dire. A
wage garnishment caused Mr. Neu to fall behind on his rent payments, forcing him to
move three times in a year. His financial condition and associated moving costs created
additional emotional stress effecting his home and work life. Eventually, both Mr.

138 For example, Ms. Tinkham budgets $140 per month for her daughter’s violinlessons—frankly the only “luxury” in almost any of these Debtors’ budgets. Obviously, theCourt hopes Ms. Tinkham’s daughter remains healthy and these violin lessons are able tocontinue, but if an emergency did arise, it would provide a source of funds for thatemergency. Similarly, the Code requires below median income debtors to remain in aChapter 13 plan for only three years, but it allows debtors to remain for up to five years.
This 24 month gap is another way below median income debtors are sometimes able tocomplete their plans, even if they temporarily lose a job or have an unexpected expense. Inthat event, debtors can seek to modify their plans under § 1329 to skip a plan payment ortwo, and add those payments on the end and still complete their plans within the allottedfive year period. This fact also serves to make many below median debtors’ plans feasibleeven when their “slim” budgets do not show much room for error.

139 Case No. 15-40654, Doc. 18.

140 Case No. 15-40654, Doc. 19.

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Neu’s personal relationship with his fiancée and job were jeopardized. Unable to pay
his bills, Mr. Neu, for the first time, sought relief under the Bankruptcy Code.

Mr. Neu has been employed deconstructing cars for the past four years and
makes approximately $1766 a month so long as he meets his quota of ten to twelve
deconstructions a week. Prior to filing this case, Mr. Neu was being garnished between
$250–$300 a pay period (13–17% of his wages) based on a deficiency he owed on a
repossessed car. This garnishment, and the financial and emotional stress that
followed, distracted Mr. Neu at work and at home. Mr. Neu had trouble maintaining
his quota at work and fought constantly with his fiancée, leading to a breakdown of
their 10 year relationship.

Mr. Neu chose to file his bankruptcy under Chapter 13 because, despite trying
to save for over a year prior to filing, he could not pay (nor hope to borrow the money
necessary) for representation in a Chapter 7 bankruptcy while having his wages
garnished. Mr. Neu also feared that should he choose Chapter 7, he would have to sell
his late brother’s truck, which holds a great deal of sentimental—though little
monetary—value.

Post bankruptcy filing, Mr. Neu’s employment and personal life are now stable
and he continues to bring home approximately $1766 a month. Mr. Neu maintains
health insurance for himself through a monthly $172 deduction in his wages and pays
$270 through his paycheck for tools he needs to complete his daily tasks. Mr. Neu does
not have any significant assets. He owns two cars free and clear, one worth
approximately $1000 that he uses for transportation and one worth approximately

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$300; the latter is the car that belonged to his now deceased brother and qualifies as
a non-exempt asset. Mr. Neu has received between $2000 and $3000 in tax refunds for
each of the last two years and anticipates a similar tax refund for the current year.

Mr. Neu’s expenses are, at first blush, extremely low. He testified that his rent
payment has been reduced from $575 to $400 since the filing of his schedules but
knows of no other inaccuracies in his filings. He only budgets $300 a month for food
and housekeeping expenses, nothing for clothing and laundry, medical, or
entertainment, and only $40 for personal care products. These estimates would be low
for a household size of one; Mr. Neu shares his house with his fiancée and her two
adult daughters, however, although he testified that their finances are kept separate.

Mr. Neu’s debt consists primarily of unsecured consumer debt and medical bills.
He has three secured creditor claims on his work tools, and plans to continue to pay
those debts from his wages, outside his bankruptcy. He has no unsecured priority debt.
Mr. Neu’s plan proposes to pay $90 a month for the required applicable commitment
period, and these payments are made via an employer pay order. Mr. Neu’s plan will
pay $310 to the Court in filing fees, $3100 to his attorney for fees and closing costs, and
the remainder to the Standing Trustee for administering the case. Mr. Neu’s general
unsecured creditors, which total approximately $11,645, will receive nothing under the
current plan. At the time of trial, the parties stipulated that Mr. Neu was not
delinquent on his plan payments and Mr. Neu testified that all of his monthly living
expenses were current.

The Court heard testimony at trial from the Standing Chapter 13 Trustee in

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Topeka, Jan Hamilton. Mr. Hamilton testified that while the national completion rate
for Chapter 13 Plans was 44.97% in Fiscal Year 2015, the Topeka Division’s completion
rate was above 65%. Mr. Hamilton also noted that fee only cases cause no additional
administrative burdens for his office simply by being fee only. Comparatively, pro se
cases require significantly more administrative time for his office and are rarely
successful.

The U.S. Trustee objected to confirmation of Mr. Neu’s plan as he did to all these
cases, arguing that the plan was not proposed in good faith under § 1325(a)(3), that the
petition was not filed in good faith under § 1325(a)(7), and that Mr. Neu’s plan was not
feasible under § 1325(a)(6).141 The U.S. Trustee also moved to convert Ms. Neu’s case
to Chapter 7 based on the same arguments.142

The Court first assesses this case for good faith and finds that under the totality
of the circumstances, Mr. Neu filed his petition and plan in good faith. This is Mr.
Neu’s first bankruptcy case and, with the exception of his decreased rent payment, his
schedules and filings are accurate to the best of his knowledge. Mr. Neu understands
that any significant increase in his disposable income may lead to a higher plan
payment and distribution to his creditors. Although Mr. Neu has no debts that would
not be dischargeable under Chapter 7, he does have one asset with tremendous
sentimental value that could be liquidated in Chapter 7 that he proposes to retain and

141 Case No. 15-40647, Doc. 25.
142 Case No. 15-40647, Doc. 26.


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pay liquidation value through his plan.

Mr. Neu considered filing Chapter 7. He tried to save enough money over the
year prior to filing his case to pay for representation, but was unable to do so because
his wages were being garnished. Mr. Neu had no one to ask for help and it was not
feasible for him to wait, while being garnished, for the next seven or eight months until
the next tax refund cycle, to obtain a tax refund and then seek bankruptcy relief. Mr.
Neu feared that should he file a Chapter 7 bankruptcy, he might lose his deceased
brother’s vehicle. Had his only option been to file his bankruptcy without the
assistance of counsel, he would not have filed at all.

With his job and relationship on the line, Mr. Neu could wait no longer for relief
under the Code—relief the U.S. Trustee agrees he needs. Mr. Neu has followed all
requirements of the Code and continues to make his plan payments as mandated by
his plan. The Standing Trustee testified that the fee only nature of this case does not
per se create more administrative work for his office than any other kind of Chapter
13 case. The Court does not find any evidence that Mr. Neu’s filing or plan were an
attempt to abuse the provisions, purpose, or spirit of Chapter 13, and the U.S. Trustee
agrees Mr. Neu has done nothing wrong other than to opt for a Chapter 13 case.

Although his unsecured creditors may receive nothing under his plan as
proposed, the Court does not find this treatment unfair or inequitable as they would
have received the same under Chapter 7. In fact, any improvement in Mr. Neu’s
finances could mean a return for his unsecured creditors that they otherwise would not

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have been entitled to.143 Mr. Neu, pressured by the financial and emotional stress of
a wage garnishment, made an honest and informed decision to devote his next three
to five years’ wages to repay his debts. Under the totality of the circumstances, the
Court finds that Mr. Neu’s case meets the requirement of good faith.

The Court next turns to the issue of feasibility and finds that Mr. Neu’s plan and
associated budget are feasible in light of the facts of his case. Mr. Neu’s income is
consistent and stable as he has been employed with the same employer for over four
years and plans to remain in his current position. Mr. Neu, therefore, satisfies §
109(e)’s requirement that Chapter 13 filers have “regular income.” On the other hand,
Mr. Neu’s expenses are slim. Mr. Neu justified his expenses by credibly testifying that
all the food he consumes at home is purchased by his fiancée and the $300 listed on his
schedule J goes only toward meals at work. He also testified that his work clothes (and,
on occasion, his personal clothes) are provided and cleaned by his employer and that
he is not required to ‘dress up’ for his job. Since his finances are so thin and his work
so physically grueling, Mr. Neu does not have the time or energy to spend money on
entertainment. He has remained current on all of his living expenses since filing, and
he appeared sincere when testifying that he is confident that he will remain so.
Finally, Mr. Neu’s and his fiancée’s finances are completely separate (with the
exception of his food consumption at home) and therefore her expenses are not
represented in his budget. Mr. Neu’s rent payment has also decreased since the filing

143 See note 98 supra.

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of his petition, giving him a small cushion for any unforeseen expenses. Mr. Neu has

demonstrated to the Court that he is committed to his plan. The Court finds Mr. Neu’s

plan as proposed is feasible and satisfies the requirement of § 1325(a)(6).

The U.S. Trustee’s objection to confirmation144 is overruled and his motion to

convert145 is denied. Plan confirmation is continued to January 27, 2016.

G. Rayton, Case No. 15-40644146
Debtor DaVonna Joyce Rayton, like many of these Debtors, sought bankruptcy

relief because of medical debt. Although there was no active garnishment of Ms.

Rayton’s wages at the time she filed her bankruptcy petition, Ms. Rayton believed she

was about to be garnished as a result of a $10,000 judgment stemming from unpaid

medical bills. Ms. Rayton’s overall debt picture is typical of the cases under

consideration herein: she has no secured debt or unsecured priority debt, but has

144 Case No. 15-40647, Doc. 25.

145 Case No. 15-40647, Doc. 26.

146 The evidence admitted at trial of this matter was sparse: despite having theburden of proving that her plan meets the requirements of § 1325(a), counsel for Ms.
Rayton elected to offer into evidence only Ms. Rayton’s deposition, rather than her livetestimony. The only other evidence admitted was the Standing Trustee’s record of Ms.
Rayton’s plan payment history. Because the deposition was taken by the U.S. Trustee, thedeposition does not elicit the facts that would have been necessary to support Ms. Rayton’sburden of proof. And even though there was live cross examination and re-direct of Ms.
Rayton at trial, the facts were simply not developed in Ms. Rayton’s favor.

The Court has been able to supplement the sparse trial record with facts gleanedfrom Ms. Rayton’s petition and schedules. See Sherman v. Rose (In re Sherman), 18 Fed.
App’x 718, 721 (10th Cir. 2001) (noting that “a bankruptcy court may take judicial notice ofschedules to the bankruptcy petition filed by the debtor” and that it “may even take noticeof schedules, averments and statements filed in prior bankruptcy cases”). From the recordin this case, the Court is able to elicit a picture—however bleak—of the feasibility of Ms.
Rayton’s Chapter 13 plan.

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unsecured, non-priority debt consisting of payday loans, medical bills, utilities, and
student loans. Ms. Rayton chose to file a Chapter 13 petition, rather than a Chapter
7 petition, because she could not raise the money to pay an attorney up front, and could
not have borrowed or saved for the Chapter 7 attorney’s fee.147

Ms. Rayton has been employed as a certified nurses aide with the same
employer since September, 2013. Although her employment has been stable, there have
been other significant changes to Ms. Rayton’s household and budget. At the time of
filing her petition, Ms. Rayton was expecting her second child. She has now delivered
her baby, and her household size has increased from two to three. Ms. Rayton’s
employment income has not changed, however, and by any measure, it is very low: she
earns only $1366 per month for her household of three. There are supplements to this
employment income, however—Ms. Rayton’s schedule I also reflects $135 per month
in food stamps, and she testified at trial that the food stamp award had increased by
about $100 with the birth of her second child. And finally regarding monthly income,
Ms. Rayton’s schedule I lists $400 per month in amortized tax refunds.

Many debtors use their tax refund to buy clothing or other items they can defer
purchasing, or to get current or pay ahead on rent, etc. Ms. Rayton testified at trial
that the reality is that she consumes her tax refund upon receipt each year, and when
she filed this case in June 2015, she had already spent her full refund. Thus, she does
not actually have $400 a month in her budget to spend until (and if) a similar 2015

147 In this case, Ms. Rayton’s counsel would have charged $1500 for the filing of aChapter 7 petition.

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refund is received. As a result of these changes to her schedule I report of income
(increasing the food stamp income but deducting the amortized tax refund), Ms.
Rayton’s actual monthly income for now is only $1601.

Regarding expenses, Ms. Rayton’s schedule J at filing showed monthly expenses
of $1620, and expressly noted that her expenses would increase with the birth of her
second child. At trial, Ms. Rayton testified that her child care and food expenses had
not increased, because she receives public assistance for child care and formula, but
that her expenses had increased overall because of the cost of diapers. Ms. Rayton
testified that her monthly rent had also increased by $5 to $500 since filing. And
finally, Ms. Rayton testified that she may have additional medical expenses from the
caesarean birth of her child, but she does not yet know because she has not received
those bills.

Ms. Rayton’s proposed plan requires a plan payment of $100 per month for
thirty six months, and that plan payment is made by her employer via an income
withholding order. Ms. Rayton’s plan proposes to pay her attorney a fee of $3100, the
Trustee’s administrative fee, and the $310 filing fee. Ms. Rayton is current on her plan
payments and at the time of trial actually had overpaid by about fifteen dollars.

The U.S. Trustee objected to confirmation of Ms. Rayton’s plan as he did to all
these cases, arguing that her plan was not proposed in good faith under § 1325(a)(3),
that her petition was not filed in good faith under § 1325(a)(7), and that her plan was

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not feasible under § 1325(a)(6).148 The U.S. Trustee also moved to convert Ms. Rayton’s
case to Chapter 7 based on the same arguments.149

 The Court first assesses this case for feasibility, as it finds that to be dispositive.
Regarding income, it is true that Ms. Rayton’s income is consistent and stable: she has
been employed with her same employer for two years, and she receives a steady
paycheck. Ms. Rayton, therefore, satisfies § 109(e)’s requirement that Chapter 13 filers
have “regular income.” The problem for Ms. Rayton, however, is that there just isn’t
enough of that income to go around. It is difficult to see from her filed schedules and
the testimony received how she can meet her monthly obligations for her household of
three and also make a plan payment. Ms. Rayton testified that she does not have any
remaining funds from her yearly tax refund and that the refund was spent on
necessities soon after receipt. As a result, her monthly income, from employment and
her increased food stamp award, totals only $1601 for her family of three for the next
several months. But her monthly expenses at the time of filing were $1620, and she
readily testified that her expenses increased with the birth of her second child.150 Ms.
Rayton’s schedule J also specifically notes that her expenses will increase. The Court
was simply unconvinced that there was a feasible way to add a plan payment of $100

148 Case No. 15-40644, Doc. 22.

149 Case No. 15-40644, Doc. 23.

150 The actual amount of the increase is also uncertain. While Ms. Rayton testifiedthat she must now buy diapers, the cost of those diapers was not elicited. In addition, Ms.
Rayton testified to potential additional medical expenses, but this was also not clarified.
The only exact number given at trial was the increase in rent of $5 per month.

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per month on top of Ms. Rayton’s monthly obligations.

And although Ms. Rayton was current with her plan payments at the time of
trial, the Court acknowledges that maintaining a plan payment while the U.S.
Trustee’s objection to confirmation is pending is one thing. Maintaining plan payments
throughout the 36 months of her case is another matter. The Court finds it unlikely
that Ms. Rayton has the present or future capacity to fund the required plan
payment,151 and finds that Ms. Rayton’s case is not feasible. Based on the facts given
at trial and the record in this case, Ms. Rayton has not demonstrated she will be able
to both make her plan payment and keep current on her necessary household
expenses.152 She seemed unaware of these budget realities, and failed to carry her
burden of proving that she “will be able to make all payments under the plan and to
comply with the plan.”153

The U.S. Trustee’s objection to confirmation154 based on feasibility is
sustained.155 Ms. Rayton shall dismiss or voluntarily convert her case to Chapter 7
within fourteen days, or the U.S. Trustee may submit an order granting his motion to

151 See In re Heck, 355 B.R. 813, 825 (Bankr. D. Kan. 2006) (finding that, even if thedebtor’s income satisfied § 109(e)’s eligibility criteria, the court could not conclude that thedebtor would “be able to make all the payments proposed for the duration of her plan).

152 See In re Rose, 14 B.R. 649, 656 (Bankr. D. Kan. 1981) (finding that understatedexpenses merited the conclusion that eventually, the debtors would either “be unable to paythe trustee . . . or will be unable to meet their necessary living expenses”).

153 § 1325(a)(6).

154 Case No. 15-40644, Doc. 22.

155 The Court finds it unnecessary, therefore, to rule on the additional bases withinthe U.S. Trustee’s objection to confirmation.

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convert.156

H. Tetuan/Milholen, Case No. 15-40566
Debtors Tanner Tetuan and Stephenie Milholen have had a rough go of it. The
young couple have two children, ages seven and four, and have had difficulty
maintaining their monthly household budget in the face of chronic medical conditions
and periodic unemployment. Mr. Tetuan suffers from mental illness—an identity
disorder that also causes anxiety—and about a year and a half to two years ago he
suffered a breakdown for which he sought inpatient treatment. Mr. Tetuan has also
received treatment for kidney stones. In addition to the medical hardships these events
have caused, they have also caused financial hardships, as Mr. Tetuan did not then
and still does not have health insurance and was unable to work while hospitalized.

Mr. Tetuan has now been employed as a night stocker at Walmart for about two
years. His employment does not currently offer him health insurance, but he will
qualify for health insurance in January, at a cost of about $36 to $40 per month. There
was no testimony what this insurance would cover or whether there would be

156 It may well be that conversion will be in Ms. Rayton’s best interest because of hertestimony that she has not yet received final bills associated with the post-petition birthand care of her newborn child, and that she may thus have incurred postpetition medicalbills associated with her prenatal care and delivery. See § 727(b) (discharging debts that“arose before the date of the order for relief under this chapter”); § 348(d) (“A claim againstthe estate or the debtor that arises after the order for relief but before conversion in a case
that is converted under section . . . 1307 of this title, other than a claim [for administrativeexpenses], shall be treated for all purposes as if such claim had arisen immediately beforethe date of the filing of the petition.”). The Court will not make this choice for Ms. Rayton,
however, in light of language in the Code permitting Ms. Rayton to dismiss her case at anytime. See § 1307(b) (“On request of the debtor at any time, if the case has not beenconverted under section 706, 1112, or 1208 of this title, the court shall dismiss a case under
this chapter. Any waiver of the right to dismiss under this subsection is unenforceable.”).

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deductible costs or co-pays. This could be significant because his lack of health
insurance has resulted in him not regularly taking prescribed medications for his
health problems because he cannot afford them. Ms. Milholen and the couple’s two
children have health insurance through the state. Ms. Milholen suffers from poor
dental health, but the couple’s children are currently healthy.

Although Mr. Tetuan has enjoyed relatively stable employment, Ms. Milholen
has had the opposite experience. She was not employed on the petition date, and was
applying for jobs at that time. She did receive a job offer and worked about a month
until Mr. Tetuan was arrested on an outstanding court fine (resulting from a ticket
received from being in a park with his children after hours), and she missed work to
care for their children. As a result, she was fired. Ms. Milholen has had three or four
short term jobs over the last five years along with long periods of unemployment.
Although she is certified as a nurses aide and a medicine aide, she is not employed now
and has been looking, without success, for employment since the case was filed six
months ago. Ms. Milholen is also half way through a program to obtain her GED,
having only completed ninth grade.

Mr. Tetuan and Ms. Milholen do typically receive a large tax refund. With the
refund they received in early 2015, Mr. Tetuan and Ms. Milholen paid off the $2700 he
owed on his 1994 Chevy truck, bought beds for their children, caught up delinquent
utility bills, and purchased a used minivan for Ms. Milholen to travel to school. They
expect to receive a refund for future tax years, and typically use that refund to catch
up on bills and buy needed clothes and items for their children.

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About five or six months prior to filing their Chapter 13 case, Mr. Tetuan’s
paycheck began to be garnished approximately $150 to $175 every two weeks. The
garnishment obviously made their monthly budget hard to handle, and Ms. Milholen
testified that with the garnishments, they were able to pay only about half of their
normal monthly expenses. The garnishments continued for five or six months, and
ultimately, Mr. Tetuan and Ms. Milholen pursued bankruptcy because they could not
stay caught up on their bills in light of the continuous garnishment. Two additional
collection cases were pending against them at the time they filed their bankruptcy
petition.

Neither Mr. Tetuan nor Ms. Milholen have filed a previous bankruptcy. They
filed their Chapter 13 bankruptcy petition because they could not afford the Chapter
7 attorney’s fee. Because of the continued garnishment, they could not save money to
pay the fee, and had no way to borrow the money. They also chose Chapter 13 because
of their understanding of the differences in the time in which a new bankruptcy case
could be filed. Mr. Tetuan testified that he understood that he would have to wait eight
years to file a subsequent/second Chapter 7 case, but would only have to wait two years
to file a new Chapter 13 case, and that it was a lot easier to predict what would happen
in two years than eight years. Mr. Tetuan and Ms. Milholen testified that they
understood that if Ms. Milholen started working and their income increased, they may
need to increase their plan payment, but Mr. Tetuan testified that he wished to stay
in the Chapter 13 case because it would be more flexible for his family.

Mr. Tetuan and Ms. Milholen’s plan payment is $75 per month for 36 months.

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Their plan pays $2983 in attorney’s fees and the Trustee’s administrative fee. Mr.
Tetuan and Ms. Milholen are current on their monthly plan payments, and are actually
a little ahead. Mr. Tetuan and Ms. Milholen have no secured debt or unsecured priority
debt, but they have $27,030 in unsecured, non-priority debt (consisting mostly of
medical and utility bills, with one payday loan). Their plan as proposed will pay zero
to their unsecured creditors.

The schedule I in this case shows that Mr. Tetuan earns $1371 per month, and
he testified that he hoped this income would increase as he is in line to be trained for
a manager position. In addition, while Ms. Milholen is entitled to receive child support
payments of $203 per month, she admitted she does not regularly receive this amount.
The household income also includes $318 each month in food stamps. This has also
changed, although for the better, recently increasing to $500 per month. With those
changes to their schedule I,157 the actual household income each month is about $1871,
not $1892 as reported at filing. The filed schedule J shows monthly expenses of $1814,
with a monthly excess of $78 for the plan payment. But again, there are changes post
filing in expenses: Mr. Tetuan testified that the food and housekeeping supplies budget
item should actually be higher than the $525 listed, as his family spends about $150
to $200 a week on these items—meaning at least $650 to $700 per month. Ms. Milholen
testified that their food and housekeeping expense was not actually quite that high, but
was about $600 to $650 per month.

157 Adding $1371 in wages to $500 in food stamps; not counting the $203 per monthin child support.

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Mr. Tetuan also testified that their transportation expense budget would need
to increase, as both their vehicles need oil changes and the van’s transmission slips and
needs a new tire rod. Ms. Milholen responded, however, that she hoped these vehicle
repairs could wait until they received their next tax refund. The vehicle insurance
budget also needs to increase, from the $62 stated in schedule J to about $120 per
month.

Mr. Tetuan testified that his household is current on their postpetition bills
except for the electricity bill because of high costs of air conditioning over the summer.
They have started a payment plan to bring this postpetition bill current, but are still
about $200 behind. Mr. Tetuan also testified that his monthly payment of $50 for court
fines had not been made for the last month, so he is $50 in arrears on that debt. Mr.
Tetuan testified that they have not incurred any other new debts or payday loans since
filing.

The parties stipulated to admission of the full testimony from the Parker case,158
including all objections that were made to that testimony concerning relevancy, from
Tim Owen, the chief financial officer for Jan Hamilton, the Standing Chapter 13
Trustee in this Division. Mr. Owen testified about certain statistics prepared by him,
and noted the national average completion rate for Chapter 13 cases of 44.97% in 2015,
compared to the completion rate for Chapter 13 cases in this Division of 65.19%. Mr.
Hamilton also testified, stating that cases with small monthly payments such as fee

158 Case No. 15-40655.

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only cases cause no more or less burden on his office than any other case. Mr. Hamilton
testified that when a plan payment is made via employer payment, there is a much
higher chance of success than self-pay cases. And finally, Mr. Hamilton testified that,
in comparison, pro se Chapter 13 cases are much more administratively burdensome
for his office and have a very low success rate. In response to this line of questioning,
the Court also noted, without objection by any party, that it would take judicial notice
of the fact that cases filed by debtors representing themselves cause more work for the
Court and Court staff.

The U.S. Trustee objected to confirmation of Mr. Tetuan and Ms. Milholen’s plan
as he did to all these cases, arguing that the plan was not proposed in good faith under
§ 1325(a)(3), that the petition was not filed in good faith under § 1325(a)(7), and that
the plan was not feasible under § 1325(a)(6).159 The U.S. Trustee also moved to convert
this case to Chapter 7 based on the same arguments.160

Again, the Court first assesses this case for feasibility, as it finds that to be
dispositive. Regarding income, with the testified changes to the reported amounts for
child support and food stamps, Mr. Tetuan and Ms. Milholen’s current monthly
household income is only $1871. And frankly, the prospects for that income to
appreciably rise do not appear to be favorable. Mr. Tetuan has had relatively stable

159 Case No. 15-40566, Doc. 17.
160 Case No. 15-40566, Doc. 18.

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employment and hopes for a raise and a manager position,161 but Ms. Milholen has had
repeated trouble securing and keeping employment. The evidence shows that Ms.
Milholen has not kept a job for long, and although she looks for new employment every
day, has been unable to find a position for many months. And Mr. Tetuan testified that
he hoped he would receive a raise with a promotion at his job, but no concrete details
were provided as to how or when this could happen. It appears to be his hope, but
nothing more concrete than that.162

Debtors’ household expenses pose an even bigger problem. The filed schedule J
lists expenses of $1814. Comparing this to the modified income number, there is only
$56 leftover each month to make a $75 per month plan payment. Obviously, this alone
would be troubling. But even if Ms. Milholen did start regularly receiving the child
support owed, the evidence showed that monthly expenses were actually higher than
this reported figure. The budget for food and household supplies needs to be increased
by a minimum of $75 and as much as $375. The budget for transportation expenses
must also increase, as both household vehicles need regular maintenance (oil changes)
and Ms. Milholen’s van needs repairs. And the vehicle insurance budget needs to
double, from the $62 stated in schedule J to about $120 per month. It is no wonder that
Mr. Tetuan and Ms. Milholen are already behind on their monthly bills: the electricity
bill is delinquent and Mr. Tetuan is behind on making his monthly payment for court

161 As a result, Mr. Tetuan and Ms. Milholen satisfy § 109(e)’s requirement thatChapter 13 filers have “regular income.”

162 Cf. In re Roe, 16 B.R. 706, 710 (Bankr. D. Kan. 1982) (noting that “changedcircumstances” can “necessitate a fresh analysis of feasibility”).

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fines. The plan payments in this case are current, but Mr. Tetuan and Ms. Milholen
must be able to stay current on all bills, not just their plan payment, if they are to have

a feasible plan.163

No matter the approach, the math just does not work in Mr. Tetuan and Ms.
Milholen’s favor. Mr. Tetuan and Ms. Milholen’s plan payment is only $75 per month,
but their budget just does not support this plan payment. As a result, Mr. Tetuan and
Ms. Milholen did not carry their burden of proving that they “will be able to make all
payments under the plan and to comply with the plan.”164

The U.S. Trustee’s objection to confirmation165 based on feasibility is
sustained.166 It is sad to say that Mr. Tetuan and Ms. Milholen fall into the ever rising
class of debtors who are, ironically, simply too poor to file bankruptcy (if they want the
luxury of having counsel assist them—something this Court always recommends for
reasons previously noted). Mr. Tetuan and Ms. Milholen shall dismiss or voluntarily
convert their case to Chapter 7 within fourteen days, or the U.S. Trustee may submit
an order granting his motion to convert.167

163 Cf. In re Dipman, No. 09-10620, 2009 WL 3633327, at *4 (Bankr. D. Kan. Oct. 29,2009) (finding a plan not feasible where the debtors were behind on postpetition mortgagepayments and plan payments and had “uncertain” employment).

164 § 1325(a)(6).

165 Case No. 15-40566, Doc. 17.

166 The Court finds it unnecessary, therefore, to rule on the additional bases withinthe U.S. Trustee’s objection to confirmation.

167 Case No. 15-40566, Doc. 18. Again, the Court will not make this choice for Mr.
Tetuan and Ms. Milholen, in light of language in the Code permitting dismissal of a case atany time. See § 1307(b) (“On request of the debtor at any time, if the case has not been

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I. Huggins, Case No. 15-40681
Ms. Huggins’ story reads much like many others: while working a low paying
job, she had started to fall behind on her living expenses when she was suddenly hit
with a garnishment of $75 per paycheck. Ms. Huggins testified that the impact of that
garnishment made it difficult for her to pay her utilities and rent while also putting
food on the table. Already stretched thin, Ms. Huggins took out payday loans and a
title loan to cover her rent and other basic needs. With five children and three adults
living in her house, those needs were not small. Finally, with the threat of an
electricity and gas shut off and constant calls and letters from creditors, Ms. Huggins
ran out of options and turned to the Bankruptcy Code for relief.

Ms. Huggins considered filing for Chapter 7, but was unable to save up for the
cost of representation and could not borrow the money. Additionally, Ms. Huggins
frequently sees a doctor and while she now has health insurance, she did not anticipate
getting it at the time of filing. Ms. Huggins feared that should she file a Chapter 7 and
continue to need medical care, her discharge would not protect her from future
garnishments for medical debt.

Ms. Huggins is employed as a housekeeper and has worked for the same
employer for approximately six months. She is paid $8 an hour and hopes to receive a
raise in the future, but is unsure of the likelihood of this happening. Ms. Huggins nets
approximately $1408 a month through her hourly wages and supplements her income

converted under section 706, 1112, or 1208 of this title, the court shall dismiss a case under
this chapter. Any waiver of the right to dismiss under this subsection is unenforceable.”).

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with $385 in food stamps and $100 she receives from her aunt in exchange for
watching her nephew. This income breakdown varies significantly from the income
listed in her schedule I due primarily to the postpetition loss of two other incomes from
her household.

At the time Ms. Huggins filed her bankruptcy, her brother, his two children,
their mother, and Ms. Huggins’ two step-children were all living under her roof. Ms.
Huggins’ original schedules reflected $721 in Social Security income and $185 in food
assistance contributed by her brother in addition to her hourly wages. Her original
schedules also accounted for the expenses of a seven person household. Subsequent to
filing, Ms. Huggins’ brother, his family, and her two step-children moved out, taking
their monetary support with them. While Ms. Huggins has not filed amended
schedules to reflect the changes, the Court assumes her expenses have similarly been
reduced.

Ms. Huggins testified at trial that she now has health insurance, but without
amended schedules or concrete testimony, it is unclear how this reduces her income or
increases her expenses. Ms. Huggins also testified at her deposition that she plans to
pay her student loan creditors outside of her plan. Again, it is unclear whether that
amount is reflected in her budget. Beyond her food stamp allocation, Ms. Huggins does
not receive government assistance and does not pay for childcare, as her brother
continues to watch her two year old son while she works.

Ms. Huggins has no significant assets. She owns her car, worth approximately
$900, subject to a high interest title loan, and does not own any other substantial

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personal or real property. Ms. Huggins expects to receive a tax refund for 2015, but
does not have an estimate of its value because she has not been required to file tax
returns for the past several years.

Ms. Huggins’ debt consists primarily of student loans, payday loans, a title loan,
unpaid utility bills, and medical bills. In total, Ms. Huggins owes about $16,203 to her
unsecured creditors and $400 to her title loan creditor. Her plan proposes to pay $100
a month for the required applicable commitment period and from that stream of
payments will pay $3158 to her attorney for fees and closing costs, $400 to her title
loan creditor, $310 to the Court in filing fees, and the remainder to the Trustee for
administering her estate. Ms. Huggins’ unsecured creditors will not receive a
distribution under her plan as proposed. Ms. Huggins makes her plan payments
through an employer income withholding order and is currently $15 ahead in her plan
payments.

At trial, Ms. Huggins admitted she was already three and a half months behind
on her rent payments. Due to the reduction in her household income after the
departure of her brother and his family, she was unable to stay current on her rent and
has since found an apartment with a lower rent payment. Ms. Huggins testified that
her rent has been reduced from $525 to $395 a month and could possibly go as low as
$230. However, she has not been able to repay her previous landlord for the payments
she missed post-petition. Ms. Huggins also recently amended her schedules to include
a postpetition electric bill of $478. Thus, Ms. Huggins is already robbing Peter to pay
Paul—making her plan payment but at the expense of regular monthly bills.

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The Court heard testimony at trial from the Standing Chapter 13 Trustee in
Topeka, Jan Hamilton. Mr. Hamilton testified that while the national completion rate
for Chapter 13 Plans is 44.97% in Fiscal Year 2015, the Topeka Division’s completion
rate was above 65%. Mr. Hamilton also noted that fee only cases cause no additional
administrative burden for his office simply by being fee only. Comparatively, pro se
cases require significantly more administrative time for his office and are rarely
successful.

The U.S. Trustee objected to confirmation of Ms. Huggins’ plan as he did to all
these cases, arguing that her plan was not proposed in good faith under § 1325(a)(3),
that her petition was not filed in good faith under § 1325(a)(7), and that her plan was
not feasible under § 1325(a)(6).168 The U.S. Trustee also moved to convert this case to
Chapter 7 based on the same arguments.169

The Court first assesses this case for feasibility, as it finds that to be dispositive.
Ms. Huggins’ employment income is consistent and stable and satisfies § 109(e)’s
requirement that Chapter 13 filers have “regular income.” However, Ms. Huggins’
income has significantly declined since filing, and her current income is approximately
$1408 a month in wages, $385 in food stamps, and $100 from her aunt, for a total
income of $1893. Her monthly expenses at filing were $2587, and while these have
likely declined due to her smaller household (e.g., food, electricity, personal care

168 Case No. 15-40681, Doc. 19.
169 Case No. 15-40681, Doc. 20.


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products), the Court cannot quantify the impact of that reduction because this
testimony was not elicited at trial. And even with a reduction, the gap between income
and expenses is so significant that the Court cannot find that Ms. Huggins will be able
to make her monthly plan payment while maintaining her monthly budget. The Court
finds it telling that Ms. Huggins has already fallen behind on rent payments and her
utilities.

Ms. Huggins also took on another needed expense—health insurance. Again, it
is not clear to the Court what the out-of-pocket expense will be for Ms. Huggins’
doctor’s visits and whether the insurance payment comes out of her wages, her budget,
or both. With so much uncertainty, it is hard to see how Ms. Huggins will continue to
make ends meet.

It is heartening that Ms. Huggins was current in her plan payments at the time
of trial. However, the Court is not convinced that this status can continue on the
budget as presented for the required duration of the plan. The Court finds it unlikely
that Ms. Huggins has the present or future capacity to fund a plan payment,170 and
finds that Ms. Huggins’ case is not feasible. Based on the facts given at trial and the
record in this case, Ms. Huggins is not able to both make her plan payment and stay
current on her necessary living expenses.171 Ms. Huggins did not carry her burden of

170 See In re Heck, 355 B.R. 813, 825 (Bankr. D. Kan. 2006) (finding that, even if thedebtor’s income satisfied § 109(e)’s eligibility criteria, the court could not conclude that thedebtor would “be able to make all the payments proposed for the duration of her plan”).

171 See In re Rose, 14 B.R. 649, 656 (Bankr. D. Kan. 1981) (finding that understatedexpenses merited the conclusion that eventually, the debtors would either “be unable to paythe trustee… or will be unable to meet their necessary living expenses”).

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proving that she “will be able to make all payments under the plan and to comply with

the plan.”172

The U.S. Trustee’s objection to confirmation173 based on feasibility is

sustained.174 Ms. Huggins shall dismiss or voluntarily convert her case to Chapter 7

within fourteen days, or the U.S. Trustee may submit an order granting his motion to

convert.175

J. Hayes, Case No. 15-40661
This is debtor Oshara Hayes’ second bankruptcy in the last five years.176 Like

many other debtors, Ms. Hayes could not afford the medical care she needed and

172 § 1325(a)(6).

173 Case No. 15-40681, Doc. 19.

174 The Court finds it unnecessary, therefore, to rule on the additional bases withinthe U.S. Trustee’s objection to confirmation.

175 As above, the Court will not make this choice for Ms. Huggins in light oflanguage in the Code permitting dismissal of a case at any time. See § 1307(b) (“On requestof the debtor at any time, if the case has not been converted under section 706, 1112, or1208 of this title, the court shall dismiss a case under this chapter. Any waiver of the rightto dismiss under this subsection is unenforceable.”).

176 Again, the evidence admitted at trial of this matter was sparse, as counsel forMs. Hayes elected to offer into evidence only Ms. Hayes’ deposition, rather than her livetestimony. The only other evidence admitted was the Standing Trustee’s record of Ms.
Hayes’ plan payment history. And again, because the deposition was taken by the U.S.
Trustee, it does not elicit the facts that would have been necessary to support Ms. Hayes’burden of proof. There was live cross examination and re-direct of Ms. Hayes at trial, butthe facts were not developed in her favor. The Court, therefore, supplements the sparsetrial record with facts gleaned from Ms. Hayes’ petition and schedules. See Sherman v. Rose
(In re Sherman), 18 Fed. App’x 718, 721 (10th Cir. 2001) (noting that “a bankruptcy courtmay take judicial notice of schedules to the bankruptcy petition filed by the debtor” andthat it “may even take notice of schedules, averments and statements filed in priorbankruptcy cases”).

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wound up with medical debt she could not pay. She was eventually hit with two
garnishments. Unable to afford her basic necessities and threatened with the loss of
her vehicle, Ms. Hayes turned to the bankruptcy system for relief.

Ms. Hayes filed her first bankruptcy—a Chapter 13 case, in 2011. Under that
plan, she proposed to pay $105 a month for 60 months. Ms. Hayes successfully
completed almost three years of her five year plan before she fell behind on her plan
payments. Her case was eventually dismissed in October 2014. During her previous
bankruptcy, Ms. Hayes lived in a house she owned, which has now been foreclosed. Ms.
Hayes has since moved into a house owned by her mother.

After the dismissal of her previous case, Ms. Hayes was again garnished by her
medical creditors. She was also worried about garnishment from her student loan
creditors. At the end of 2014, Ms. Hayes took out a title loan on her car, her only
remaining asset, in order to pay bills.

In early 2015, Ms. Hayes began to fall behind on her title loan payments and,
worried about the loss of her only mode of transportation to and from work, looked
again to the bankruptcy system for relief. Ms. Hayes could not save enough money to
hire a lawyer to file a Chapter 7 case—after all, she had had to resort to a high interest
title loan to merely save her car. She also felt more comfortable under Chapter 13
because of her previous experience. In her prior bankruptcy, she agreed to assign her
tax refund to pay her attorney but Ms. Hayes did not discuss this option for her current
bankruptcy. Ms. Hayes received only a small refund of $136 for 2014, so it is unlikely
that an attorney would have accepted an assignment of a future tax refund to secure

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representation for her even if she had considered assigning it.

The majority of Ms. Hayes’ debts consist of medical bills, although she also owes
debts to student loan creditors and for the deficiency on her now foreclosed mortgage.
The remainder of her debts consist primarily of miscellaneous consumer debt such as
credit cards. In total, Ms. Hayes owes approximately $120,000 to her unsecured
creditors. Ms. Hayes also owes approximately $2073 in back taxes to the state of
Kansas and Arkansas. Ms. Hayes still owes $637 to the title loan creditor on her 2004
Nissan Sentra, which she values at $3850.

 When Ms. Hayes filed her case she was working as a front desk clerk at a hotel
for approximately $8 an hour, but changed jobs soon after filing due to safety concerns.
Ms. Hayes is now employed as a store clerk and has been with her current employer
for four months, now earning even less—$7.50 an hour. As a result of this change in
employment, her monthly reported employment income of $1425 has decreased.177 Ms.
Hayes supplements her wages by selling handmade jewelry and paintings, but her
efforts bring in only sporadic income that is not predictable in timing or amount. Ms.
Hayes is entitled to receive $200 a month in back child support for her now adult
daughter, but admitted that payment is not consistently received and she does not
know how long it will continue. Ms. Hayes also has a claim for $3000 in back rent from
former tenants, but does not believe she will receive payments as the tenants do not

177 Ms. Hayes actually reported employment net income of $1091, but this figurereflected a reduction of $333 in monthly garnishments. Because those garnishments havepresumably stopped, the Court adds the garnishment figure back into Ms. Hayes’employment income when assessing feasibility.

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have an income to the best of her knowledge. Ms. Hayes anticipates a tax refund for
2015 but cannot estimate its value at this time.

Ms. Hayes’ expenses are slim but not unreasonable, at $1292 per month. She
budgets $100 a month for rent she pays her mother, who owns the house where she
resides. This payment goes primarily to pay property taxes. Ms. Hayes’ other monthly
expenses are reasonable for a single person household in Topeka: $350 for food, $30 for
clothing and laundry, $150 for transportation, $50 for entertainment, and $166 for car
insurance. However, Ms. Hayes budgets only $25 a month for medical and dental
expenses and nothing for health insurance despite not being insured through her
employment and despite the fact that a rough count of her medical creditors listed on
schedule F number at least 20—suggesting she has ongoing health care needs and
bills.

Ms. Hayes’ plan proposes $100 a month payments for an estimated 36 months
totaling $3600 over the life of the plan. Ms. Hayes proposes to pay $3180 to her
attorney for fees and closing costs, $310 to the Court for filing fees, $637 to Speedy
Cash for her title loan, and the remainder to the Trustee for administering the case.
On its face, the plan will likely extend to 42 months in order to pay everything listed
above. The plan proposes to pay nothing to Ms. Hayes’ unsecured creditors. Ms. Hayes
was delinquent $23 on her plan payment at trial due to her switch from an employer
withholding order to direct payments.

As noted, Ms. Hayes initially proposed to make her Chapter 13 plan payments
via an employer wage withholding order. She has now elected to make her payments

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directly to the Standing Trustee. Ms. Hayes testified that this decision was fueled by
the perceived discomfort of her new employer with her pending bankruptcy. In the
words of Ms. Hayes, her employer “made a big deal” about having her plan payments
deducted from her paycheck and even questioned Ms. Hayes as to why she hadn’t
disclosed her bankruptcy when she interviewed for the job.

The U.S. Trustee objected to confirmation of Ms. Hayes’ plan as he did to all
these cases, arguing that her plan was not proposed in good faith under § 1325(a)(3),
that her petition was not filed in good faith under § 1325(a)(7), and that her plan was
not feasible under § 1325(a)(6).178 The U.S. Trustee moved to convert Ms. Hayes’ case
to Chapter 7 based on the same arguments.179 In addition, the Standing Trustee
objected to confirmation and moved to dismiss this case, arguing that Ms. Hayes’ plan
was not feasible.180

The Court first assesses this case for feasibility, as it finds that to be dispositive.
As a preliminary matter, the Court has trouble finding that Ms. Hayes’ income is
consistent and stable. First, testimony revealed she has had three different employers
over the prior four years. Second, she has already changed employers since the filing
of the case five months ago, and has only been with her current employer for four
months. Third, her relationship with her new employer already appears, at best, rocky.
The Court was simply not convinced that it is more likely than not that Ms. Hayes will

178 Case No. 15-40661, Doc. 26.

179 Case No. 15-40661, Doc. 27.

180 Case No. 15-40661, Docs. 20 and 21.

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be able to maintain consistent employment through the life of a Chapter 13 plan.

The Court also questions the solvency of Ms. Hayes’ proposed budget.
Considering her history of medical bills and lack of health insurance, it is not clear how
a $25 per month medical budget is feasible for Ms. Hayes. Ms. Hayes’ income at filing
was only $1425, because she cannot rely on receiving her $200 per month child support
payments. But this number, already low, has now been reduced by her change in
employment. By the time her monthly expenses of $1292 and her plan payment of $100
are deducted from her reduced income, it is unlikely Ms. Hayes’ would be able to pay
for her medical and other needs. While she may be current on her plan payment this
month, one doctor visit could derail her entire budget at any time over the coming
years.

The Court finds it unlikely that Ms. Hayes has the present or future capacity to
fund a plan payment,181 and finds that Ms. Hayes’ case is not feasible. Based on the
evidence received at trial, the Court finds Ms. Hayes has not met her burden of
demonstrating that she will likely be able to both make her plan payment and keep
current on her necessary or unexpected household expenses for the life of the plan.182

181 See In re Heck, 355 B.R. 813, 825 (Bankr. D. Kan. 2006) (finding that, even if thedebtor’s income satisfied § 109(e)’s eligibility criteria, the court could not conclude that thedebtor would “be able to make all the payments proposed for the duration of her plan”).

182 See In re Rose, 14 B.R. 649, 656 (Bankr. D. Kan. 1981) (finding that understatedexpenses merited the conclusion that eventually, the debtors would either “be unable to paythe trustee… or will be unable to meet their necessary living expenses”) and
§ 1325(a)(6).

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The U.S. Trustee’s objection to confirmation183 and the Standing Trustee’s
objection to confirmation184 based on feasibility are sustained. Ms. Hayes shall dismiss
or voluntarily convert her case to Chapter 7 within fourteen days, or the U.S. Trustee
may submit an order granting his motion to convert.185 The Standing Trustee’s motion
to dismiss based on feasibility is denied as moot.186

IV. Conclusion
Bankruptcy is a balancing act. This Court strives to balance the needs of debtors
and creditors while following the requirements of the Code and the guidance of case
law. But the Court does not act in a factual void; instead, it must also consider the
practical import of its decisions—the day to day, real-world application of the decisions
made in a sterile courtroom. While the balance may never be perfect, the Court’s
guiding light is the Code as enacted: not as it wishes it was or hopes it will be. The
Tenth Circuit has stated:

The policy of allowing a fresh start does not license debtors to lightly ridthemselves of the burden of their indebtedness without an honest attemptat repayment. Yet neither does that policy compel debtors, in Dickensianfashion, to labor for the rest of their lives under the crushing weight of

183 Case No. 15-40661, Doc. 26.

184 Case No. 15-40661, Doc. 20. The Court finds it unnecessary, therefore, to rule onthe additional bases within the U.S. Trustee’s objection to confirmation.

185 As above, the Court will not make this choice for Ms. Hayes in light of languagein the Code permitting dismissal of a case at any time. See § 1307(b) (“On request of thedebtor at any time, if the case has not been converted under section 706, 1112, or 1208 ofthis title, the court shall dismiss a case under this chapter. Any waiver of the right todismiss under this subsection is unenforceable.”).

186 Case No. 15-40661, Docs. 20 and 21.

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gigantic debt; under our law, the world is not to be made a debtor’s prison

by a lifelong sentence of penury.187
This balance—the protection of a fresh start coupled with the burdens placed by the
Code to get there—is the reason the Code has the confirmation requirements found in
§ 1325.

And those confirmation requirements are necessary. Chapter 13 petitions and
plans must be filed in good faith. Plans must be feasible. There are, obviously, many
other requirements. The bottom line, though, is that the Code gives most debtors a
choice: they can file under either Chapter 13 or Chapter 7. They can choose to utilize
the services of counsel—a choice this Court wholeheartedly recommends both for their
best interest and for the smooth operation of the Court, or they can choose to proceed
pro se with all the attendant risks that choice brings. As long as debtors meet the
confirmation requirements, and other statutory hurdles, it is debtors who get to make
this choice, hopefully in consultation with competent bankruptcy counsel. The U.S.
Trustee does not get a vote, he does not get to substitute his judgment for that of
debtors, and the Code simply does not require the “special circumstances,” or “heavy
burden” standard he seeks when debtors eligible to file under either Chapter 7 or
Chapter 13 elect to proceed under Chapter 13.188

187 Mason v. Young (In re Young), 237 F.3d 1168, 1178 (10th Cir. 2001).

188 In argument, the U.S. Trustee insisted his positions were meant to protectvulnerable debtors, essentially arguing that they needed protection from the very counseleach had selected, and suggesting those counsel had acted improperly in not sending theseimpoverished individuals away to suffer more garnishments and more hardship while theysaved or otherwise magically raised the money necessary to fund a Chapter 7. But thetestimony was clear and consistent; these Debtors did not have the money, could not save

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It bears repeating: the “primary purpose of the good faith inquiry is to determine
under the totality of the circumstances of a case whether there has been an abuse of
the provisions, purpose, or spirit of Chapter 13.”189 The Court finds no abuse of the
provisions, purpose, or spirit of Chapter 13 by the choices made in the cases discussed
above. Yes, there may be no distribution to unsecured creditors. Again, in a perfect
world, all debtors would file Chapter 13 plans and repay all their debts, and no creditor
would walk away empty handed. But we do not live in that world.

Instead, this is a world where debtors are harassed by daily collection calls for
admittedly delinquent debts. Where they are repeatedly required to miss work to
attend a cattle call docket to explain why they haven’t paid old medical bills. Where
they cannot afford to keep the gas on, and feel compelled to incur title or payday loans
at exorbitant rates to feed their families. Where their meager wages are reduced even
further by garnishments. Where they opt not to seek necessary medical care or take
prescribed medication because they cannot afford it. This is the world these Debtors
live in, and this real world sometimes requires bankruptcy, even if the debtor cannot
save enough to pay the up front attorney’s fees required to file a Chapter 7. In Flygare

up the money in any timely fashion, could not borrow the money, could not pledge assets(they have almost none), and could not wait seven or eight months for the next cycle of taxrefunds, assuming they would even be entitled to a refund. They all need bankruptcy relief,
and they all need it now. To this point, the U.S. Trustee agreed. The Court is unaware ofsome magical place these Debtors could go to get pro bono representation. In a perfectworld, Debtors would be able to receive competent representation to file Chapter 7bankruptcies without charge, to ensure they got the best and cheapest fresh start the Codeand state exemptions allow them. As stated above, we do not live in that perfect world.

189 In re Sandberg, 433 B.R. 837, 845 (Bankr. D. Kan. 2010).

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the Tenth Circuit advised bankruptcy courts to judge “each case on its own facts after
considering all the circumstances of the case.”190 The Court has done so, and finds that
Debtors have carried their burdens to show good faith.

The Code also requires a debtor to show he can make plan payments while
maintaining ongoing monthly expenses of living. This requirement was the downfall
of some of the cases under consideration. While a “slim” Chapter 13 budget is not
necessarily an indication of a sinking ship, debtors must be able to demonstrate that
it is likely they can make their plan payments and comply with their plan in addition
to keeping current on their household budget. Before filing a case, debtors and their
counsel must look closely at the budget to make that determination. In the cases found
to be not feasible, the budget simply did not support the long-term success of the
proposed plan.

The Court makes one final observation: the Chapter 13 process in this Division
works. It works well. It works well because of the cooperation and congeniality of the
local debtor and creditor bars, but it also works well in large part because of the
guiding hand of the Standing Trustee, Jan Hamilton, his staff attorney, and the rest
of his staff, who have to use their good judgment every day to make difficult decisions
about when to object to confirmation, when to move to dismiss or convert, and how to
generally process thousands of cases. That the cases monitored by this Standing
Trustee have enjoyed a superior plan completion rate to that obtained in most districts

190 709 F.2d at 1347 (internal quotation marks from United States v. Estus (In re
Estus), 695 F.2d 311, 316–17 (8th Cir. 1982) omitted).

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across the country is further evidence of a well-functioning Chapter 13 system. The
Court is grateful for the processes and procedures Mr. Hamilton has put in place to
make the system work so well here.

It is, therefore, ordered that the U.S. Trustee’s objection to confirmation191
in the Ellsperman case is overruled and his motion to convert192 is denied. The
Standing Trustee’s objection to confirmation and motion to dismiss193 in the
Ellsperman case are also overruled and denied. The Court sets this case for
confirmation hearing on January 27, 2016.

It is further ordered that the U.S. Trustee’s objection to confirmation194 in the
Wark case is overruled and his motion to convert195 is denied. This case is set for
confirmation hearing on January 27, 2016.

It is further ordered that the U.S. Trustee’s objection to confirmation196 in the
Parker case is overruled and his motion to convert197 is denied. This case is set for
confirmation hearing on January 27, 2016.

191 Case No. 15-40609, Doc. 23.
192 Case No. 15-40609, Doc. 25.
193 Case No. 15-40609, Docs. 19 and 20.
194 Case No. 15-40558, Doc. 16.
195 Case No. 15-40558, Doc. 17.
196 Case No. 15-40655, Doc. 20.
197 Case No. 15-40655, Doc. 21.


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It is further ordered that the U.S. Trustee’s objection to confirmation198 in the
Blacksmith case is overruled and his motion to convert199 is denied. The Standing
Trustee’s objection to confirmation and motion to dismiss200 are also overruled and
denied. This case is set for confirmation on January 27, 2016.

It is further ordered that the U.S. Trustee objection to confirmation201 in the
Tinkham case is overruled and his motion to convert202 is denied. This case is set for
confirmation hearing on January 27, 2016.

It is further ordered that the U.S. Trustee’s objection to confirmation203 in the
Neu case is overruled and his motion to convert204 is denied. This case is set for
confirmation hearing on January 27, 2016.

It is further ordered that the U.S. Trustee’s objection to confirmation205 based
on feasibility in the Rayton case is sustained. Ms. Rayton shall dismiss or voluntarily
convert her case to Chapter 7 within fourteen days, and if not, the U.S. Trustee shall

198 Case No. 15-40641, Doc. 29.
199 Case No. 15-40641, Doc. 30.
200 Case No. 15-40641, Docs. 26 and 27.
201 Case No. 15-40654, Doc. 18.
202 Case No. 15-40654, Doc. 19.
203 Case No. 15-40647, Doc. 25.
204 Case No. 15-40647, Doc. 26.
205 Case No. 15-40644, Doc. 22.

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submit an order granting his motion to convert.206 The confirmation hearing set for
January 27, 2016 is cancelled. The Standing Trustee shall withdraw his motion to
compel an attorney fee itemization,207 due to his withdrawal of his objection to
confirmation and motion to dismiss in this case, and the hearing on that motion to
compel is also cancelled.

It is further ordered that the U.S. Trustee’s objection to confirmation208 based
on feasibility in the Tetuan/Milholen case is sustained. Mr. Tetuan and Ms. Milholen
shall dismiss or voluntarily convert their case to Chapter 7 within fourteen days, and
if not, the U.S. Trustee shall submit an order granting his motion to convert.209 The
Standing Trustee’s objection to confirmation and motion to dismiss based on good
faith210 are overruled and denied as moot. The confirmation hearing set for January 27,
2016 is cancelled.

It is further ordered that the U.S. Trustee’s objection to confirmation211 based
on feasibility in the Huggins case is sustained. Ms. Huggins shall dismiss or
voluntarily convert her case to Chapter 7 within fourteen days, and if not, the U.S.

206 Case No. 15-40644, Doc. 23.
207 Case No. 15-40644, Doc. 42.
208 Case No. 15-40566, Doc. 17.
209 Case No. 15-40566, Doc. 18.
210 Case No. 15-40566, Docs. 21 and 22.
211 Case No. 15-40681, Doc. 19.


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Trustee shall submit an order granting his motion to convert.212 The confirmation
hearing set for January 27, 2016 is cancelled.

It is further ordered that the U.S. Trustee’s objection to confirmation213 and
the Standing Trustee’s objection to confirmation214 based on feasibility in the Hayes
case are sustained. Ms. Hayes shall dismiss or voluntarily convert her case to Chapter
7 within fourteen days, and if not, the U.S. Trustee shall submit an order granting his
motion to convert.215 The Standing Trustee’s motion to dismiss is denied as moot.216
The confirmation hearing set for January 27, 2016 is cancelled.

It is so Ordered.
# # #


212 Case No. 15-40681, Doc. 20.
213 Case No. 15-40661, Doc. 26.
214 Case No. 15-40661, Doc. 20.
215 Case No. 15-40661, Doc. 27.
216 Case No. 15-40661, Doc. 21.

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12-40260 Inyard (Doc. # 103)

In Re Inyard,12-40260 (Bankr. D. Kan. Jun. 18, 2015) Doc. # 103

PDFClick here for the pdf document.


 

SO ORDERED.
SIGNED this 17th day of June, 2015.

 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re: Case No. 12-40260
Frederick Mark Inyard, Chapter 13

Debtor.

Memorandum Opinion and Order Granting
Motion for Hardship Discharge


Did Congress intend to allow a discharge for those debtors who die
before they complete the payments required under their confirmed Chapter
13 plans? Although deceased debtors presumably no longer care about the
answer to that question, their heirs and creditors sometimes do. And that is
the situation here.

One of Debtor Frederick Inyard’s post-petition creditors—Josh
Saunders—was named administrator of Debtor's decedent estate in state

Case 12-40260 Doc# 103 Filed 06/17/15 Page 1 of 21


probate court,1 giving him standing to file a motion for hardship discharge in
this bankruptcy case.2 The Chapter 13 Trustee (Trustee) objected to the
motion, arguing that, as a matter of law, the Court has no authority to grant
a hardship discharge after a debtor’s death. Because the Court holds that it
does have that authority under 11 U.S.C. § 1328(b) and Federal Rule of
Bankruptcy Procedure 1016, and because such a discharge is appropriate
under the facts here, the administrator’s motion is granted.

I. Findings of Fact
The parties agree on the facts necessary to resolve this motion.3 When
Debtor voluntarily filed for relief under Chapter 13 in March 2012, he
claimed to be 79 years old, was receiving Social Security benefits,4 and listed
total liabilities of $60,753.5 Creditors filed claims totaling $41,573.6 By the
time he died in August 2014, Debtor had paid $20,148 towards completion of
his Chapter 13 Plan—$16,203 of which came from his post-petition

1 Doc. 89 at ¶11.

2 Doc. 91.

3 Doc. 101, Stipulation of Facts.

4 Debtor included his age on Schedule I, which was filed under penalty of

perjury. He noted in response to Question 2 in his Statement of Financial Affairsthat the main source of income was Social Security. Doc. 1.
5 Doc. 101, Stipulation of Facts ¶ 2.
6 See Claims Register Summary within the Court’s CMECF records.
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liquidation of non-exempt personal property.7 Trustee used approximately
$14,934 of that sum to satisfy priority claims and to make a pro rata payment
to unsecured creditors who had filed claims, and he used the remainder to
pay trustee and attorney fees.8 Since Debtor was a below medium income
debtor, he should have completed the plan payments within three years—a
time period that would have expired by now if he started making plan
payments when required by statute and if he had made them consistently. As
it is, Debtor made 29 plan payments and has a base balance still owed of
$525.00 (7 more payments of $75.00).9 This means to complete his entire plan
and receive a discharge, he was only $525 short. These remaining payments
would have gone towards repayment of a small additional pro rata portion of
the claims of unsecured creditors.

Debtor’s only scheduled asset of any significant value when he filed his
case was his exempt homestead, which he valued at $95,200 (with no
mortgage debt). Aside from the property he auctioned before confirmation,10
Debtor’s other scheduled property consisted only of an exempt pickup,

7 Doc. 101, Stipulation of Facts ¶¶ 4–5.

8 Doc. 97, Trustee’s Report of Receipts and Disbursements.

9 Doc. 101, Stipulation of Facts ¶ 5.

10 Doc. 48.

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miscellaneous exempt household goods, clothing, and jewelry, as well as
several nonexempt vehicles, all of inconsequential value.

II. Conclusions of Law
A. Jurisdiction.
The court has jurisdiction over this case under 28 U.S.C. § 1334, and
this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J), over which the
Court has the authority to enter a final order.

B. Analysis.
Under 11 U.S.C. § 1328(b),11 a bankruptcy court may grant a hardship
discharge at any time after confirmation of a plan, even when plan payments
have not been completed. Federal Rule of Bankruptcy Procedure 4007(d)
dictates the procedure to be followed in hardship discharge proceedings; it
requires that all creditors be given notice of the deadline to both object to the
motion and to file any objections to discharge under § 523(a)(6). No creditor
filed an objection to the motion or an adversary proceeding seeking a
determination of dischargeability, notwithstanding the mailing of that notice
to creditors. Only the Chapter 13 Trustee has objected to the motion.12

11 All future statutory citations will be to Title 11 of the United States Code,
unless otherwise noted.
12 Doc. 91.
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The debtor bears the burden of proof when seeking a hardship

discharge,13 and so the debtor—or his designee—must prove all three

elements of 11 U.S.C. § 1328(b):

(1) the debtor's failure to complete such payments isdue to circumstances for which the debtor should not
justly be held accountable;
(2) the value, as of the effective date of the plan, ofproperty actually distributed under the plan on accountof each allowed unsecured claim is not less than the
amount that would have been paid on such claim if theestate of the debtor had been liquidated under chapter7 of this title on such date; and
(3) modification of the plan under section 1329 of thistitle is not practicable.
The Trustee agrees that Debtor’s failure to complete his plan payments

is due to circumstances for which he should not justly be held accountable14

and that unsecured claimants have received even more than they would have

received had Debtor originally filed a Chapter 7 case.15 He also agrees that

modification of the plan is not practicable.16 These admissions by the only

13 Roberts v. Boyajian (In re Roberts), 279 F.3d 91, 93 (1st Cir. 2002)(holdingthat “[t]he ultimate evidentiary burden to establish an entitlement to a hardshipdischarge under Bankruptcy Code § 1328(b)(1) rested upon [the debtor]”).

14 Doc. 95, Objection to Motion for Hardship Discharge ¶ 3(a).

15 Doc. 101, Stipulation of Facts ¶ 11.

16 Doc. 95, Objection to Motion for Hardship Discharge ¶ 3(c). Trustee alsoagrees that other potential statutory barriers to discharge are inapplicable here,
admitting: 1) it is now impossible for Debtor to complete the Personal FinancialManagement Course required by §1328(g)(1), id. at ¶ 3(d); 2) Debtor has not

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objecting party would typically be sufficient to warrant granting a motion for
hardship discharge, but the Trustee here contends both that, as a matter of
law, a deceased debtor is ineligible for a hardship discharge, and that, even if
a deceased debtor may be granted a hardship discharge, such a discharge is
not warranted in this case.

As a result, the Court must make two determinations here. First, the
Court must determine whether a deceased debtor is eligible for a hardship
discharge when death is the only factor rendering him unable to complete his
plan. Second, because the Court answers that question in the affirmative, the
Court must determine whether a hardship discharge is warranted under the
facts of this case.

Federal Rule of Bankruptcy Procedure 1016, entitled “Death or
Incompetency of Debtor,” governs bankruptcy proceedings following the death
of a debtor. It states, in pertinent part:

If [an] . . . individual's debt adjustment case is pendingunder . . . chapter 13 [when a debtor dies], the case maybe dismissed; or if further administration is possibleand in the best interest of the parties, the case may

previously received a discharge under any Chapter , id. at ¶ 3(e); 3) Debtor claimeda homestead exemption below the statutory amount for debtors who meet certaincriteria under 11 U.S.C. §522(q)(1)(A), id. at ¶ 3(f); and 4) Trustee has no knowledgeof any proceeding pending in which the Debtor may be found guilty of a felony asdescribed in 11 U.S.C. § 522(q)(1)(A) or any liability for a debt of the kind describedin §522(q)(1)(B), id. at ¶ 3(g).

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proceed and be concluded in the same manner, so far aspossible, as though the death or incompetency had notoccurred.

Under Rule 1016, then, either this case may be dismissed, or, if the Court
determines that further administration of the case is possible and is in the
best interest of the parties, the case may proceed and be concluded in the
same manner as though Debtor were still alive.

As a preliminary matter, the Court must determine whether the
administrator of Debtor’s probate estate is an appropriate party to pursue
further administration of the case. Interestingly, Rule 1016 does not require
that another party be substituted for the debtor, and, indeed, there appears to
be no mechanism in the Rules to allow for substitution of another party with
regard to the normal administration of the case. This becomes more
complicated in two situations.

First, under Fed. R. Bankr. P. 7025, Fed. R. Civ. P. 25 applies in
adversary proceedings and requires substitution of a new party for the
deceased debtor if the claims at issue survive the debtor’s death and the case
requires the debtor’s (or, rather, the debtor’s representative’s) participation to
continue. Absent a motion to substitute, the debtor’s death would lead to
dismissal of the adversary. Second, under Fed. R. Bankr. P. 9014, “unless the
court directs otherwise,” Fed. R. Civ. P. 25 applies in all contested matters,

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Case 12-40260 Doc# 103 Filed 06/17/15 Page 7 of 21


including objections to a motion for a hardship discharge.17

At a hearing in November 2014, on the Trustee’s Motion to Dismiss18
and creditor Josh Saunders’ objection to that motion, the Court ordered that
the case be dismissed unless “within 60 days an Administrator in State Court
is appointed and files something in this Court in response to the Motion to
Dismiss.” In response, the administrator sought and received that
appointment from the state court.19 Since that time, this bankruptcy case has
proceeded with the administrator representing Debtor’s interests. As a result,
the Court will not require strict compliance with Fed. R. Civ. P. 25 (that
Saunders be substituted as the debtor), as is the Court’s prerogative under
Fed. R. Bankr. P. 9014.

The Court also notes that the mere existence of all these rules
governing the need for substitution—or the lack thereof —suggests that

17 The Rules do not clarify what happens when a debtor dies and there is nopending adversary or contested matter. Intuiting from the procedures in thosecases, however, it appears that a representative of the debtor’s estate could proceedwith administration of the case. There does not appear to be a proceduralrequirement for substitution in that case, but the issue is not before the court.
Indeed, anything that would bring such a situation before the Court, such as anobjection to a motion or the filing of an adversary proceeding, would bring the issuewithin the boundaries of Fed. R. Bankr. P. 9014 or 7025, which would allow
substitution of another party for the deceased debtor.

18 Doc. 85.

19 Doc. 89.

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Congress knew bankruptcy cases could continue after a debtor’s death, at

least in some circumstances. And certainly, some party must act on the

Debtor’s behalf, if the case is to continue as permitted by Rule 1016.

A recent Northern District of Illinois case is persuasive on this issue:

Rule 1016 permits a case to continue despite thedeath of the debtor without the formal substitution of
another party for the debtor. The case can only“continue” or “proceed” if someone is permitted to actin the bankruptcy case on behalf the deceased debtor.
If no party could ever act on behalf of a deceaseddebtor because there is no separate rule specificallyproviding for formal substitution, the provisions inRule 1016 allowing a case to continue after thedebtor's death would be meaningless. The onlyinterpretation that gives meaning to these provisionsin the rule is that no formal substitution is necessary.
. . . Under Rule 1016, an appropriate representativeof the debtor may act on behalf of the debtor withouta formal substitution.20

The Trustee here does not dispute that movant is a proper representative of

the deceased Debtor, nor that a deceased debtor can pursue administration of

the case.21 Further, no one disputes that a person’s eligibility to file a

20 In re Kosinski, No. 10 bk 28949, 2015 WL 1177691, at *3 (Bankr. N.D. Ill.

March 5, 2015). As noted above, when another party to the case objects or otherwise

creates a contested matter, under Fed. R. Bankr. P. 9014, “unless the court directs

otherwise,” Fed. R. Civ. Proc. 25 applies and would require substitution.

21 See In re Shepherd, 490 B.R. 338, 340 (Bankr. N.D. Ind. 2013) (seeking a

hardship discharge for a deceased debtor does not require replacing the debtor with

another entity).

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bankruptcy petition is determined at the commencement of a case,22 and no
party in interest objected to Debtor’s eligibility to file his bankruptcy when he
did so in 2012. In light of these facts, the Court holds that the administrator
is an appropriate party to pursue further administration of the case. Having
resolved that preliminary procedural matter, the Court turns to the Trustee’s
arguments.

1.
A deceased debtor remains eligible for a hardship
discharge when death is the only factor rendering
him unable to complete his plan.
The Trustee first argues that, as a matter of law, Rule 1016 precludes a
hardship discharge for a deceased debtor. In short, he reads Rule 1016's
allowance of “further administration of the state . . . in the same manner, so
far as possible, as though the death or incompetency had not occurred” as
barring a hardship discharge based on Debtor’s death, arguing that
considering a debtor’s death as the reason for the discharge is inherently not
proceeding as though the death had not occurred.23 In other words, the
Trustee seems to suggest that only if someone agrees to and does pay the
remaining plan payments on behalf of the deceased debtor could a discharge
be granted, and that a hardship discharge would never be available.

22 Id. at *5.

23 Doc. 95.

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Courts that have addressed this question are split, but the vast
majority hold that Rule 1016 does not, as a matter of law, bar a hardship
discharge for a deceased debtor, even if no further payments are made after
death.24 The parties cite no binding precedent on this issue, and the Court has
found none.

Certainly, the rule is susceptible to the Trustee’s interpretation, but the
rule could be read just as easily to allow discharge. In other words, one could
also interpret the statute to allow the case to proceed in the same manner as
if the debtor were still alive but unable to make payments due to
circumstances for which the debtor should not justly be held accountable, that
is, to allow the hardship discharge. The only difference between the normal
hardship discharge and the discharge sought in this case is the debtor’s
death.

Under Rule 1016, the Court should conclude the case “in the same
manner, so far as possible, as though the death or incompetency had not
occurred,”25 and in the case of a deceased debtor, that could be read to

24 See Kosinski, 2015 WL 1177691, at *2 (“Almost all courts addressing thisissue have reached the same conclusion, with some noting that a hardshipdischarge is not only available but is “the only reasonable alternative.”); In re Frank
Lizzi, Nos. 09–10097, 10–13875, 2015 WL 1576513, at *4 (Bankr. N.D.N.Y. April 3,2015)(“A majority of courts agree that a hardship discharge is available to adeceased debtor.”).

25 Fed. R. Bankr. Proc. 1016.

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Case 12-40260 Doc# 103 Filed 06/17/15 Page 11 of 21


prevent the Court from denying the debtor a discharge solely because he is

dead. The Court finds no suggestion in the Rules or the Code that the “further

administration” of the case envisioned by Rule 1016 cannot include

administration via a hardship discharge.26

Although both of these readings of the rule are plausible, “there is

nothing in the Code prohibiting a deceased debtor from receiving a hardship

discharge.”27 Particularly, nothing in § 1328(b) limits the hardship discharge

to a living debtor. And, given that the Federal Rules are not to “abridge,

enlarge, or modify any substantive right,”28 the Court hesitates to interpret

Rule 1016 to limit any debtor’s substantive right to a hardship discharge.29

26 In re Hoover, No. 09–71464, 2015 WL 1407241, at *2 (Bankr. N.D. Cal.
March 24, 2015)(“[F]urther administration of the case can encompass a hardshipdischarge.”). In addition, the Trustee was holding $325 as of May 1, 2015 thatwas paid in by the Debtor before his death, but which remained undisbursed whenthe most recent Trustee Report was filed May 1, 2015. See Doc. 97. Those funds are
thus also apparently available for further administration.

27 Lizzi, 2015 WL 1576513, at *4 (finding deceased debtors should be grantedhardship discharge even though creditors holding priority claims had not yet beenpaid in full, and unsecured creditors had received nothing).

28 28 U.S.C. § 2705.

29 Some commentators have argued that 28 U.S.C. § 2705’s prohibition onbankruptcy rules that “abridge, enlarge, or modify any substantive right” preventsa court from even considering Rule 1016 when evaluating a deceased debtor’srequest for a hardship discharge, although few or no courts appear to have takenthis position. Alan M. Ahart, Whether to Grant a Hardship Discharge in Chapter
13, 87 Am. Bankr. L.J. 559, 575 n.127 (2013)(“Where the matter before the court isthe deceased debtor's motion for a hardship discharge, the court must not evaluatewhether further administration of the case is possible or in the best interest of the

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The hardship discharge has a long lineage, dating to the 1938 Chandler
Act.30 The modern version of the hardship discharge originated in the
Bankruptcy Reform Act of 1978, when Congress liberalized the requirements
for a hardship discharge by striking Chandler Act language requiring the
debtor himself to apply for the discharge and by eliminating a time-in-plan
requirement, among other changes.31 This liberalized standard appears to
have led to an increase in the discharges issued to deceased debtors. Indeed,
many of the early hardship discharge cases—decided soon after the 1978
Code was enacted— explicitly limited the discharge to cases of deceased
debtors,32 and Congress has made no move to restrict this practice during the
thirty plus years that have followed. In light of this history and of the plain
language at issue, the Court holds that neither the text of § 1328(b) nor Rule
1016 bar a deceased debtor from receiving a hardship discharge.33

parties under Federal Rule of Bankruptcy Procedure 1016. The court should simplydetermine whether the three elements for a hardship discharge under BankruptcyCode § 1328(b) have been satisfied. The court must not consider Rule 1016 becauseno Bankruptcy Rule may abridge, enlarge or modify any substantive right, such asthe right to a hardship discharge where all of the statutory requirements have been
met. See 28 U.S.C. § 2075 (2012).”).

30 Id. at 560–61.

31 Id. at 562.

32 Id. at 563.

33 Cf. Lizzi, 2015 WL 1576513; Hoover, 2015 WL 1407241; Kosinski, 2015 WL
1177691.

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The Trustee argues against this position based on two recent cases from
two Colorado bankrutpcy courts—obviously both within the Tenth
Circuit—that each denied a deceased debtor a hardship discharge. In the
first, In re Fogel,34 the debtor died one month after plan confirmation. His
wife, acting as his personal representative, continued making the payments
required by the plan, but failed to inform the court of debtor’s death until she
had completed all payments. The court concluded that the debtor’s wife was
not a party, as envisioned by Rule 1016, and declined to consider her interests
in a discharge.35 The Court also held, with little explanation, that in a
Chapter 13, “the continued existence of the debtor is crucial to the continued
administration of case.”36

The Court appears to give short shrift to Rule 1016, and fails to explain
who could be an appropriate party to continue pursuing a deceased debtor’s
case, as envisioned by that rule. The Court may have determined that the
debtor’s wife was not truly acting as a personal representative of the debtor,
but was instead merely acting in her own self interest, but this is not clear
from the opinion. In any case, the Court does not find the reasoning in In re

34 512 B.R. 659 (Bankr. D. Colo. 2014).

35 Id.

36 Id. at 663.

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Case 12-40260 Doc# 103 Filed 06/17/15 Page 14 of 21


Fogel persuasive, and declines to adopt that court’s restrictive reading of Rule
1016.

The reasoning in the second case, In re Miller,37 is also difficult to parse.
The district court in Miller, reviewing a bankruptcy court decision, stated
that, “In this case, the debtor has made no showing that a hardship discharge
would be in the best interest of the parties to the bankruptcy case. A hardship
discharge based on the death of the debtor does not satisfy the requirements
of Rule 1016.”38 It is unclear from these statements, and from the remainder
of the decision, if the district court found that a court could never grant a
hardship discharge to a deceased debtor under Rule 1016, or whether,
instead, it intended to hold that its particular debtor should not be granted a
discharge under the specific facts of that case.

If the Miller court interpreted Rule 1016 to bar discharges as a matter
of law for deceased debtors, this Court disagrees, for the reasons articulated
above. If the basis for the district court’s decision was that the facts of that
case did not merit discharge, then that decision is easily distinguished.

Again, under the facts in Miller, the district court appeared to believe
that the personal representative of the debtor based her argument that

37 526 B.R. 857 (D. Colo. 2014).
38 Id. at 861.
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Case 12-40260 Doc# 103 Filed 06/17/15 Page 15 of 21


continued administration (in the form of a discharge) was in the best interest
of the parties solely on the benefits that would accrue to her, the personal
representative. This Court agrees that Rule 1016 requires the Court to look
more broadly. As Rule 1016 states, a court should continue administration of
the case only if doing so is “in the best interest of the parties,” not merely in
the personal interest of a party who purports to represent the debtor’s
interest.

These two cases, which are not controlling authority for this Court, do
not change the Court’s analysis here. In both Miller and Fogel, the courts
expressed concern about the fairness of granting a hardship discharge when
that holding would result in wholly unsecured second mortgages being
stripped from the surviving non-debtor spouse’s home. Unlike the facts in
both the Colorado cases, there is no mortgagee whose lien will be stripped if
the hardship discharge is granted here, so the equities differ between those
cases, and this one. As the Miller court noted, “Section 1328(b) provides that
the court ‘may’ grant a discharge if the specified circumstances are shown.
Use of the word ‘may’ indicates that the grant of such a discharge is within
the discretion of the court.”39 And this Court is using that discretion to grant
the discharge here.

39 Id. at 862.
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Case 12-40260 Doc# 103 Filed 06/17/15 Page 16 of 21


2.
The best interest of the parties merits granting a
hardship discharge in this case.
Having held that a deceased debtor may receive a hardship discharge
as part of the further administration of his case, the Court turns to the second
part of Rule 1016. Is it in the best interest of the parties to allow further
administration, in the form of a hardship discharge, with final distribution of
funds on hand pursuant to the confirmed plan? Where do the equities lie?

First, the Court considers the interests of the pre- and post-petition
creditors.40 The pre-petition priority creditors have already been paid in full,
and there were no secured creditors.41 A discharge would not impact the
secured and priority creditors in any way.

The unsecured creditors have already received payments in a larger
amount than they would have received if Debtor had filed his case under
Chapter 7. Debtor’s plan required him to liquidate certain non-exempt

40 The Court considers the interests of the post-petition creditors because theadministrator, in his capacity as a post-petition creditor, has filed motions in the
case. See, e.g., Docs. 84, 86, and 89. The Court also notes that, in his present role asadministrator of Debtor’s probate estate, the administrator has a fiduciary duty torepresent the probate estate, not merely himself as only one post-petition creditor.
In re Lohse, 207 Kan. 36, 37 (1971).

41 Doc. 97, Trustee’s Report of Receipts and Disbursements through May 1,2015.

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property, which sale he completed even before his plan was confirmed, and he
thereafter paid into the estate the amount the Trustee agreed was necessary
for distribution pursuant to the plan’s provisions and applicable law.42 And,
significantly, after notice, not a single pre-petition creditor has objected to the
grant of a hardship discharge. Because the unsecured creditors have already
had some recovery—more than they would have been entitled to receive in a
Chapter 7, and because none of those creditors object to discharge, the Court
finds that it would not be inequitable to deny the unsecured creditors further
recovery (by granting a hardship discharge).

This determination also finds support from the policy goals of the
bankruptcy code. To deny a discharge under the facts of this case, when a
deceased debtor is unable to complete his plan but has paid in more to his
unsecured creditors than had he filed a Chapter 7, would discourage debtors
from filing Chapter 13 proceedings because it would allow pre-petition
creditors to seek additional recovery against his probate estate. That
interpretation would defeat Congress’s clear preference for debtors to attempt
Chapter 13 plans.43

42 Doc. 48 (requiring Debtor to pay $16,023.85 of the sale proceeds to theTrustee for payment of “trustee’s fees, administrative attorney fees, priority taxes,
and then to general unsecured claims”) and § 1325(a)(4).

43 In re Woolsey, 696 F.3d 1266, 1275 (10th Cir. 2012)(opting for aninterpretation of the bankruptcy code that would not be “contrary to Congress's

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Case 12-40260 Doc# 103 Filed 06/17/15 Page 18 of 21


Turning to post-petition creditors, the Court finds they would clearly
benefit from a hardship discharge, because they will not have to share pro
rata (in the assets of the probate estate) with the creditors whose claims were
provided for, partially paid in the plan, and now (soon to be) discharged. Post-
petition creditors, like Mr. Saunders, the movant and administrator, have
had no recovery thus far from the bankruptcy estate, and equity favors
allowing them the potential to have a possibly greater recovery within
Debtor’s probate estate by issuing a hardship discharge. Weighing the
interests of all the creditors, then, the Court find that allowing the hardship
discharge is equitable, in that it allows the best chance for all creditors to
have some recovery.

Third, to the extent chapter 13 Trustees have additional interests
separate and apart from the creditors’ interests in whether courts should
grant hardship discharges to deceased debtors under similar facts, there has
been no showing that those unique interests are affected by granting a
hardship discharge here. Thus, the Trustee’s interest in preserving the
integrity of the bankruptcy system is not jeopardized.

Lastly, equity favors giving this deceased Debtor the benefit of a
hardship discharge. Debtor paid in over $20,000 to his bankruptcy estate, and

preference for individual debtors to use Chapter 13 instead of Chapter 7”).
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Case 12-40260 Doc# 103 Filed 06/17/15 Page 19 of 21


was attempting to fulfill the requirements of his confirmed plan when he
died. He was 29 months into a plan that required payments over 36 months,
and he owed only $575 to complete his plan and receive his Ҥ 1328(a) full
compliance discharge.”44 Penalizing him (or his heirs, if their interests can
even be considered) because he died when he had completed over two-thirds
of the payments under the plan does not comport with the Bankruptcy Code’s
goal of giving deserving debtors a fresh start. The Court notes that it is
appropriate to consider the equities with respect to the Debtor himself,
because as noted above, despite his death, he remains eligible for further
administration of his case, and he is an appropriate person for consideration
when balancing the equities. He is represented by the administrator, and
nothing in the Rules or the Code suggest that the Court should not continue
to consider his interests when making this determination.

Balancing these interests, the Court determines that a hardship
discharge is in the best interest of the parties to the case. The Motion for
Hardship Discharge is granted, and the Trustee’s objection to that motion is
overruled.

As a final matter, the Court grants Debtor’s request for a waiver of the
personal financial management course requirement under 11 U.S.C. §

44 Doc. 101, ¶ 3.
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Case 12-40260 Doc# 103 Filed 06/17/15 Page 20 of 21


1328(g)(1). Under the plain text of that statute, the requirement “shall not
apply with respect to a debtor who is a person described in section 109(h)(4),”
which includes debtors unable to complete the course due to “incapacity,
disability, or active military duty in a military combat zone.” The Trustee
agrees that Debtor’s death rendered him unable to complete the course,45 and
the Court waives this requirement.

It is, therefore, ordered that the Debtor’s Motion for Hardship
Discharge is granted, and Debtor is excused from complying with the
requirement under 11 U.S.C. § 1328(g)(1) to complete a course on personal
financial management.

# # #

45 Id. at ¶ 8.
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12-40260 Doc# 103 Filed 06/17/15 Page 21 of 21

 

15-06067 Cornerstone Bank v. McClan Construction, LLC et al (Doc. # 13)

Cornerstone Bank v. McClan Construction, LLC et al, 15-06067 (Bankr. D. Kan. Sep. 21, 2015) Doc. # 13

PDFClick here for the pdf document.


SO ORDERED.
SIGNED this 21st day of September, 2015.

 

UNITED STATES BANKRUPTCY COURT
DISTRICT OF KANSAS


In re: Case No. 15-21434
Brett Eric Clanton Chapter 7
Sheryl Jean Clanton,

Debtors.

Cornerstone Bank,

Plaintiff, Case No. 15-6067

v. Adversary Proceeding
McClan Construction, LLC,
NJ Trenching, LLC,
Brett Eric Clanton, and
Sheryl Jean Clanton,


Defendants.

Order Granting in Part and Denying in Part Motion to Abstain
and Remanding Proceeding

This adversary proceeding, although only recently pending in this Court, has a
long and tortured procedural history. This Court must now unfortunately add to this

Case 15-06067 Doc# 13 Filed 09/21/15 Page 1 of 20


procedural morass by addressing the notice of removal filed by state court Defendants,
McClan Construction, LLC (“McClan Construction”) and NJ Trenching, LLC (“NJ
Trenching”). The Court grants state court Plaintiff Cornerstone Bank’s Motion to
Remand this matter back to the state court where it has pended nearly five years.

I. Background and Procedural History1
Between 2010 and 2013, Cornerstone Bank obtained money judgments against
Debtors Brett and Sheryl Clanton in excess of $4 million, arising out of personal
guarantees Debtors gave to secure repayment of notes, also secured by now foreclosed
mortgages on real property.2 Cornerstone Bank then began proceedings to execute on
these money judgments under Kansas statutes governing executions of judgments.3
Cornerstone Bank issued garnishments to Defendants McClan Construction and NJ
Trenching based on testimony (given by one or both of the Debtors during hearings in
aid of execution) that Debtors worked for these entities.4

1 The facts as detailed herein are the apparently non-disputed facts gatheredfrom the parties’ pleadings and the facts as they appear on the docket of both thisadversary case and Debtors’ bankruptcy case.

2 Interestingly, Debtors’ Statement of Financial Affairs reflects that one ofthe Debtors was a Director of Cornerstone Bank beginning in 2001 and ending in2010.

3 See K.S.A. 60-2401 though 60-2420 (article 24 of chapter 60 of the Kansascivil statutes governing executions and orders of sale).

4 Both business entities are listed in Debtors’ Statement of Financial Affairs
as a business “in which the debtor was an officer, director, partner, or managingexecutive of a corporation, partner in a partnership, sole proprietor, or was self-
employed in a trade, profession, or other activity either full- or part-time . . . , or inwhich the debtor owned 5 percent or more of the voting or equity securities . . .” In
addition, in response to Question 19 which requires Debtors to list all bookkeepers

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Case 15-06067 Doc# 13 Filed 09/21/15 Page 2 of 20


The “Answers of Garnishees” provided by McClan Construction and NJ
Trenching, however, stated that Debtors were not employed by these entities. As a
result, Cornerstone Bank filed an objection to the garnishment answers, a forensic
accountant was ultimately appointed, and the parties engaged in substantial discovery
supervised by the state court.

Following this discovery process, on January 2, 2015, Cornerstone Bank filed an
Amended Garnishment Objection. Within that Amended Objection, Cornerstone Bank
argued that Debtors were in fact employed by McClan Construction and NJ Trenching,
and that Debtors had received significant compensation from both companies.
Cornerstone Bank alleged that McClan Construction and NJ Trenching had paid at
least $646,801.97 toward Debtors’ mortgage and personal credit card debts in the time
since the Bank’s garnishment was issued.

The Bank’s Amended Garnishment Objection asked the state court to enter
judgment in its favor and against McClan Construction and NJ Trenching for either
1) the total amount of the judgments against Debtors, or 2) the sum of $164,141.99,
which is 25% of the amount paid by McClan Construction and NJ Trenching on
Debtors’ mortgage and credit card debt. The Amended Objection further asked the
state court to “impute income” of $40,425.12 per month to Debtors and order McClan
Construction and NJ Trenching to pay 25% of that income (or $10,106.28) to

and accountants who kept or supervised their accounts and records, Debtors notethat Sheryl Clanton was such a bookkeeper or accountant for “McCorkendaleConstruction, Inc. - (1987- 2012), NJ Trenching, LLC - (1998 - current), and McClanConstruction, LLC - (2012 -current).”

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Case 15-06067 Doc# 13 Filed 09/21/15 Page 3 of 20


Cornerstone Bank each month until the Bank’s judgment against Debtors is satisfied.
Finally, Cornerstone Bank asked for an award of attorneys fees and other costs and
fees.

The garnishment litigation (i.e., the Amended Garnishment Objection) was
pending in state court when Debtors filed their chapter 7 bankruptcy petition on July
7, 2015. According to Cornerstone Bank, the parties had begun discovery related to the
Bank’s Amended Garnishment Objection, the parties had had nine separate hearings
before the assigned state court judge, and the state court had recently entered an order
permitting Cornerstone Bank to issue numerous business records subpoenas.

In their chapter 7 bankruptcy petition, Debtors list a $4.2 million claim against
them from Cornerstone Bank and other significant debt: half a million dollars owed to
the Internal Revenue Service for civil penalties, nearly $1.1 million in secured debt on
their homestead (which they value at $900,000), and more than a million dollars in
unsecured debt in addition to the debt owed Cornerstone Bank. Question 1 of the
Statement of Financial Affairs of Debtors’ petition requires debtors to state the gross
income received from “employment, trade, or profession, or from operation of the
debtor’s business, including part-time activities either as an employee or in
independent trade or business” for the two years immediately preceding the filing, and
Debtors stated, under penalty of perjury, that they received zero income from McClan
Construction and NJ Trenching, or from any employment.5 In addition, Debtors’

5 Question 1 doesn’t ask a debtor to state where he or she has not received
income within the last two years, so it is rare, indeed, to see the answer to this

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Schedule I lists no true “income,” as that term is typically understood: rather, they list
$2064.17 in “other monthly income” and specify that this “income” is because “NJ
Trenching pays for health ins. and gas for business use.” Debtors’ Schedule J lists
$10,334.65 in monthly expenses, and states a monthly deficit of $8,270.48.

Twelve days after Debtors filed their bankruptcy petition, McClan Construction
and NJ Trenching filed a notice of removal of the state court garnishment litigation
pending against them, which initiated the adversary proceeding that is the subject of
this Order. In their notice of removal, McClan Construction and NJ Trenching allege
this Court’s jurisdiction arises under 28 U.S.C. § 157 and § 1334(a) and (b) and that the
removed action is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), and (E).
Specifically, McClan Construction and NJ Trenching allege the removed case involves:

[A] determination of the scope and extent of the Debtors’ interest inproperty (are the monies at issue “salary or wages” of the Debtors insteadof expense reimbursements of the Debtors), the nature, validity and scopeof Cornerstone’s interest in and to the property claimed to be salary, andif said property is determined to be salary, the amount of Debtors’exemption in said property.6
In response to the notice of removal, Cornerstone Bank filed its motion to remand, or

in the alternative, for the Court to abstain from hearing this matter.

question reflect “$0.00," as Debtors’ response states when then listing the “Source”
of this “non-income” as NJ Trenching and McClan Construction.

6 Doc. 1, Notice of Removal of Civil Proceeding.

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II. Analysis
A. This Court’s Jurisdiction
Under the federal statues governing removal, a party “may remove any claim

or cause of action in a civil action . . . to the district court for the district where such

civil action is pending, if such district court has jurisdiction of such claim or cause of

action under section 1334 of [title 28].”7 In support of its motion to remand this matter

to the state court, Cornerstone Bank argues this Court lacks jurisdiction to hear the

parties’ garnishment dispute.8

Under 28 U.S.C. § 1334(b), federal district courts have “original but not exclusive

jurisdiction of all civil proceedings arising under title 11, or arising in or related to

cases under title 11.” In this district, pursuant to 28 U.S.C. § 157(a), which permits

7 28 U.S.C. § 1452(a).

8 As an initial matter, the parties debate whether there continues to be apresumption against jurisdiction over removed cases in federal courts. Compare
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (holding that acause of action is presumed to be outside the limited jurisdiction of federal courtsand that “the burden of establishing the contrary rests upon the party assertingjurisdiction”), with Dart Cherokee Basin Operating Co. v. Owens, ___U.S. ___, 135 S.
Ct. 547, 554 (2014) (referring to the “purported ‘presumption’ against removal”
relied on by the district court in remanding the case to state court, but holding sucha presumption did not apply where Congress had specifically enacted a federalstatute—there the Class Action Fairness Act— facilitating adjudication in federalcourts, and noting that the Court need not then decide whether “such apresumption is proper in mine-run diversity cases”).

Regardless of the continued existence of a presumption against jurisdiction inremoved cases, the party asserting subject matter jurisdiction has the burden ofproving the existence of that jurisdiction. 2 Moore’s Federal Practice § 12.30[5]
(Matthew Bender 3d ed.); Radil v. Sanborn W. Camps, Inc., 384 F.3d 1220, 1224
(10th Cir. 2004). As a result, McClan Construction and NJ Trenching bear theburden of proving jurisdiction here.

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referral to bankruptcy judges, the bankruptcy court has been referred “all cases under
title 11 and any or all proceedings arising under title 11 or arising in or related to a
case under title 11” by the district court.9 Pursuant to this referral, bankruptcy judges
may thus hear and determine all “core proceedings arising under title 11, or arising in
a case under title 11”10 and all proceedings “arising in or related to a case under title
11.”11

Federal statutes aid in the determination of whether a matter is a “core
proceeding.” McClan Construction and NJ Trenching contend the Cornerstone Bank
Amended Garnishment Objection is a core proceeding under three sections of 28 U.S.C.
§ 157(b)(2). That statute defines core proceedings as “(A) matters concerning the
administration of the estate,” “(B) the allowance or disallowance of claims against the
estate or exemptions from property of the estate,” and “(E) orders to turn over property
of the estate.” Cases defining “core proceeding” shed additional light.12

The Tenth Circuit has defined core proceedings as those that “arise in” or “arise

9 D. Kan. S.O. 13-1; D. Kan. Rule 83.8.5.

10 28 U.S.C. § 157(b)(1).

11 28 U.S.C. § 157(a).

12 See Burgess v. Lederer (In re Burgess), No. 12-1743 MER, 2013 WL
1344580, at *2 (Bankr. D. Colo. Apr. 2, 2013) (calling the list of examples of coreproceedings in § 157(b)(2) instructive, but noting that the statute “does not entirelysettle the issue of whether . . . claims are, in fact, ‘core proceedings’” and statingthat debtors “must do more than simply attach a superficial classification to anasserted claim; rather, a debtor’s claim must substantially ‘arise under’ or ‘arise in’a case under title 11”).

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under” cases under title 11.13 “Matters ‘arise under’ title 11 if they involve a cause of
action created or determined by a statutory provision of title 11. Matters ‘arise in’ a
bankruptcy if they concern the administration of the bankruptcy case and have no
existence outside of bankruptcy.”14 To sum, core proceedings have no existence outside
of bankruptcy, depend on bankruptcy laws for their existence, and could not proceed
in another court.15

Cornerstone Bank argues that there is no core jurisdiction because answers to
garnishments are “purely issues of state law,” and any relief it obtains via its Amended
Garnishment Objection would be against McClan Construction and NJ
Trenching—neither of whom are debtors in any pending bankruptcy. As noted above,
in its Amended Garnishment Objection, Cornerstone Bank seeks two types of relief:
1) that judgment be entered against McClan Construction and NJ Trenching for either
the total amount of the judgments Cornerstone Bank has against Debtors or 25% of
what McClan Construction and NJ Trenching paid to Debtors’ creditors on Debtors
behalf during the relevant time period; and 2) that a monthly income of $40,425.12 be
imputed to Debtors and that McClan Construction and NJ Trenching be ordered to pay

13 Gardner v. United States (In re Gardner), 913 F.2d 1515, 1517–18 (10thCir. 1990).

14 Narro v. Ford Motor Credit (In re Narro), No. 11-1070 S, 2012 WL
4027258, at *9 (Bankr. D.N.M. Sept. 12, 2012) (citing Wood v. Wood (In re Wood),
825 F.2d 90, 96 (5th Cir. 1987) and Personette v. Kennedy (In re Midgard Corp.), 204

B.R. 764, 771 (10th Cir. BAP 1997)).
15 Santander Consumer, USA, Inc. v. Houlik (In re Houlik), 481 B.R. 661, 674
(10th Cir. BAP 2012).

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25% of that monthly imputed income each month to Cornerstone Bank until its
judgment is satisfied. The first category of requested relief is a judgment against the
garnishees McClan Construction and NJ Trenching. The second category of requested
relief, however, that monthly income be imputed to Debtors and that Cornerstone
Bank be paid part of Debtors’ monthly income, is more difficult to categorize.

Imputing income to Debtors, exempting a portion of that imputed income, and
ordering turnover of some or all of that imputed income to one particular creditor
holding a prepetition debt, could be read as involving “the administration of the
estate,” consideration of “exemptions from property of the estate,” and “orders to turn
over property of the estate” under the statutory “core” framework in § 157(b)(2). The
Amended Garnishment Objection certainly does not, however, involve a cause of action
created or determined by a provision of the Bankruptcy Code. In addition, the
resolution of the Amended Garnishment Objection “does not require the interpretation
or enforcement of bankruptcy law.”16 The garnishment action may impact the
bankruptcy estate, but it has an existence outside of bankruptcy and does not depend
on bankruptcy laws for its existence. The Amended Garnishment Objection has existed,
and could continue to exist, in another court. Viewed through the lens of “arising
under” or “arising in,” therefore, the Amended Garnishment Objection does not qualify
as a core proceeding.17

16 Id.

17 The cases cited by McClan Construction and NJ Trenching do notpersuade otherwise. For example, in In re Brickell, 142 F. App’x 385, 389 (11th Cir.

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The next question, then, with regard to this Court’s jurisdiction, is whether the
Court has “related to” jurisdiction over the Amended Garnishment Objection.
Proceedings related to a bankruptcy case are those that “could have been commenced
in federal or state court independently of the bankruptcy case, but the outcome of that
proceeding could conceivably have an effect on the estate being administered in
bankruptcy.”18 To determine whether a matter is related to a bankruptcy case, courts
focus on “whether the action potentially impacts administration of the bankruptcy
estate.”19 “Although the proceeding need not be against the debtor or his property, the
proceeding is related to the bankruptcy if the outcome could alter the debtor’s rights,
liabilities, options, or freedom of action in any way, thereby impacting on the handling
and administration of the bankruptcy estate.”20

This Court is satisfied that the broad test for related to jurisdiction is met here.
Cornerstone Bank argues that the resolution of the Amended Garnishment Objection

2005), the Eleventh Circuit concluded that the garnishment of an estatedistribution was a core proceeding, but the facts there were very different from thesituation at hand. Here, the garnishment at issue is that of a third party’s paymentto a bankruptcy estate, not of a payment from the estate, and involves a disputeconcerning the answer thereto from non-debtor entities. McClan Construction andNJ Trenching also rely on In re Pulliam, 262 B.R. 539, 543 (Bankr. D. Kan. 2001),
and In re Urban, 262 B.R. 865, 866–67 (Bankr. D. Kan. 2001), but these cases standonly for the proposition that wages earned prepetition and paid either pre or postpetition are property of the estate to which a chapter 7 trustee could claim aninterest and to which Kansas exemption statutes on earnings could apply. Thosecases contain no discussion of “core” or jurisdiction at all.

18 Midgard, 204 B.R. at 771 (internal quotations omitted).

19 Houlik, 481 B.R. at 674.

20 Gardner, 913 F.2d at 1518 (internal citations and quotations omitted).

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will have no effect on the administration of Debtors’ bankruptcy estate because any
remedy obtained would only be against McClan Construction and NJ Trenching. But
the outcome of the Amended Garnishment Objection could conceivably have an effect
on the administration of Debtors’ bankruptcy estate. For example, as Debtors’ point
out, their tax liability could be impacted by a determination regarding income imputed
to Debtors and characterized as “earnings” by the state court, and this could have an
impact on Debtors’ liabilities and the claims made against Debtors’ estate.

Potential effects are all that are needed to bring the Amended Garnishment
Objection within this Court’s related to jurisdiction. The Court is satisfied it has
related to jurisdiction over this matter, and that is enough to resolve Cornerstone
Bank’s motion to remand based on jurisdiction.21

B. Abstention
Next, Cornerstone Bank argues that this Court should abstain under 28 U.S.C.
§ 1334(c), which provides for both permissive abstention under subsection (c)(1) and
mandatory abstention under subsection (c)(2). As do the parties, the Court first

21 Although bankruptcy courts have jurisdiction to hear matters that are notcore proceedings but that are otherwise related to cases under title 11, thebankruptcy judge is required to “submit proposed findings of fact and conclusions oflaw to the district court, and any final order or judgment shall be determined by thedistrict judge . . . ” 28 U.S.C. § 157(c)(1). The parties may consent to entry ofjudgment by a bankruptcy court in a related to case, but no statement regardingCornerstone Bank’s position has been filed with this Court. See Fed. R. Bankr. P.
9027(e)(3) (requiring parties, within 14 days after the filing of a notice of removal,
to “file a statement admitting or denying any allegation in the notice of removalthat upon removal of the claim or cause of action the proceeding is core or non-core,”
and if alleging that the cause of action is non-core, “state that the party does or doesnot consent to entry of final orders or judgment by the bankruptcy judge”).

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assesses the applicability of mandatory abstention under § 1334(c)(2), which states:

Upon timely motion of a party in a proceeding based upon a State lawclaim or State law cause of action, related to a case under title 11 but not
arising under title 11 or arising in a case under title 11, with respect towhich an action could not have been commenced in a court of the United
States absent jurisdiction under this section, the district court shallabstain from hearing such proceeding if an action is commenced, and canbe timely adjudicated, in a State forum of appropriate jurisdiction.

The test to determine whether mandatory abstention applies is multi-factor.

“Mandatory abstention applies when all of the following elements are present: (1) the

motion to abstain was timely; (2) the action is based on state law; (3) an action has

been commenced in state court; (4) the action can be timely adjudicated in state court;

(5) there is no independent basis for federal jurisdiction other than bankruptcy; (6) the
matter is non-core.”22
Factors one through three (whether the motion to abstain was timely filed,
whether the Amended Garnishment Objection is based on state law, and whether the
matter was already commenced in state court) and factor five (that there is no
independent basis for federal jurisdiction other than bankruptcy) are not contested by
McClan Construction and NJ Trenching. The Court has already determined herein
that factor six (that the matter is non-core) is applicable. The remaining factor, and the
one the parties dispute, is factor four: whether the action can be timely adjudicated in
state court.

22 Telluride Asset Resolution, LLC v. Telluride Global Dev., LLC (In re
Telluride Income Growth, LP), 364 B.R. 390, 398 (10th Cir. BAP 2007).

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“The burden of proving timely adjudication is on the party seeking abstention.”23
When assessing this factor, courts “have focused on whether allowing an action to
proceed in state court will have any unfavorable effect on the administration of a
bankruptcy case” or the bankruptcy court’s efficient and expeditious handling of all
matters connected with the bankruptcy estate.24 The consideration of “timely
adjudication” is itself a multi-factor test:

In considering whether allowing a case to proceed in state court willadversely affect the administration of a bankruptcy case, courts haveconsidered some or all of the following factors: (1) backlog of the statecourt and federal court calendar; (2) status of the proceeding in statecourt prior to being removed (i.e., whether discovery had beencommenced); (3) status of the proceeding in the bankruptcy court; (4) thecomplexity of the issues to be resolved; (5) whether the parties consent tothe bankruptcy court entering judgment in the non-core case; (6) whethera jury demand has been made; and (7) whether the underlyingbankruptcy case is a reorganization or liquidation case.25

Some of these factors require the party moving for abstention to present evidence.26 For
example, the Tenth Circuit BAP has stated that evidence is required to demonstrate
“the status of the state court calendar and status of [the] proceedings in state court,”
but that other factors that are evident from the bankruptcy court and adversary record,
such as the status of the adversary proceeding, the consent of parties to have the
bankruptcy court enter judgments, and the nature of the underlying bankruptcy case,

23 Personette v. Kennedy (In re Midgard Corp.), 204 B.R. 764, 778 (10th Cir.
BAP 1997).

24 Id.
25 Id. at 778–79 (internal footnotes and citations omitted.
26 Id. at 779.


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Case 15-06067 Doc# 13 Filed 09/21/15 Page 13 of 20


do not require evidence.27

Here, the Court has no evidence of any kind from the parties. For example, this
Court has no idea of the state court’s current backlog, if any, or how much work
remained, before removal, to be able to conclude this matter in state court. The parties
have mentioned the pre-removal issuance of business subpoenas, but no one has
provided any evidence to demonstrate where that issuance fits in the scheme of the
discovery time line, or how much work remains for the state court judge.

The Court can admittedly glean the status of the bankruptcy court proceeding
from a review of its docket sheet, but it is both very early in the bankruptcy case and
difficult to predict the issues that will eventually need resolved in Debtors’ bankruptcy.
Further, the parties have not yet consented to allow this Court to enter a final
judgment.28 As a result, because Cornerstone Bank has failed, as movant, to meet its
burden to show timely adjudication, this Court is left to conclude that mandatory
abstention under § 1334(c)(2) is not applicable.

The Court next assesses permissive abstention under § 1334(c)(1), which states:
[N]othing in this section prevents a district court in the interest of justice,
or in the interest of comity with State courts or respect for State law,
from abstaining from hearing a particular proceeding arising under title

27 Id.

28 The Court presumes, based on Cornerstone Bank’s filing of a motion toremand or abstain, that it would not consent to final adjudication in the bankruptcycourt. When a party does not consent to a bankruptcy court entering judgment in anon-core, related to proceeding, the bankruptcy court will make recommendationsto the district court, and this requisite, and thus more time-consuming, two-tierreview “may favor a finding of timely adjudication in a state court.” Id.

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11 or arising in or related to a case under title 11.

Again, the Court will employ a multi-factor test, which includes:

1. the effect or lack of effect on the efficient administration of the estate
if a court abstains; 2. the extent to which state law issues predominateover bankruptcy issues; 3. the difficulty or unsettled nature of theapplicable state law; 4. the presence of a related proceeding commencedin the state court or other nonbankruptcy court; 5. the jurisdictionalbasis, if any, other than 28 U.S.C. § 1334; 6. the degree of relatedness orremoteness of the proceeding to the main bankruptcy case; 7. thesubstance rather than form of an asserted “core” proceeding; 8. thefeasibility of severing state law claims from core bankruptcy matters toallow judgments to be entered in state court with enforcement left to thebankruptcy court; 9. the burden on the bankruptcy court's docket; 10. thelikelihood that the commencement of the proceeding in bankruptcy courtinvolves forum shopping by one of the parties; 11. the existence of a rightto a jury trial; 12. the presence in the proceeding of nondebtor parties;
and 13. any unusual or other significant factors.29
As the party moving for this Court’s abstention under § 1334(c)(1), Cornerstone Bank

has the burden of establishing that permissive abstention is appropriate.30 “Permissive

abstention is a matter within the sound discretion of the bankruptcy court.”31

Because it is so early in the administration of Debtors’ Chapter 7 case, and

because of the limited related-to nature of the garnishment action, there should be only

a small effect, if any, on the administration of the bankruptcy case if this Court

abstains from hearing this matter. In addition, it seems clear that because state law

29 In re Lunt, No. 10-13712, 2011 WL 1656404, at *1–2 (Bankr. D. Kan. May2, 2011) (citing 1 Norton Bankr. L & Prac. 3d § 8.6 (Thompson/West 2010)).

30 In re Commercial Fin. Servs., Inc., 215 B.R. 397, 413 (Bankr. N.D. Okla.
2000).

31 In re Tri-Valley Distrib., Inc., No. BAP UT-05-119, 2006 WL 2583247, at *6
(10th Cir. BAP 2006).

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Case 15-06067 Doc# 13 Filed 09/21/15 Page 15 of 20


predominates the garnishment action, the state court is certainly an appropriate forum
to resolve any disputes therein. And the state court is obviously very familiar with the
law and facts here, as the parties and the pertinent garnishment issues have been in
front of that court for quite some time. There is no jurisdictional basis to bring the
garnishment action to this Court other than § 1334, and although this Court has
determined the state court action is related to the bankruptcy, it is not closely
intertwined and is not a core proceeding that requires any severing of the cause of

action.32

Turning to the remaining factors, this Court would not be burdened by retaining
this case on its docket, and the Court has no evidence of any forum shopping by
Debtors or McClan Construction and NJ Trenching, so these factors either lean in
favor of retaining the case or are neutral. The presence of nondebtor parties and the
consideration of other “unusual or significant factors,” however, are both significant
considerations here. Neither McClan Construction nor NJ Trenching are debtors or
creditors in Debtors’ bankruptcy, and the fact that the state court has been attempting
to resolve the garnishment issue between McClan Construction and NJ Trenching with
Cornerstone Bank for several years is a significant factor. Weighing all these factors,

32 Even if the Court is incorrect in its determination of core versus related-to
jurisdiction, and the Amended Garnishment Objection was a core matter ratherthan a related to matter, the Court would still exercise its discretion to abstain from
hearing the Amended Garnishment Objection under § 1334(c)(1), which isapplicable to “both core and non-core matters when abstention best serves theinterest of justice, judicial economy, or in the interest or comity with the statecourts.” The Scoular Co. v. Dalhart Consumers Fuel Assoc., Inc. (In re Podzemny),
No. 11-09-14226 JL, 2010 WL 1795269, at *6 (Bankr. D.N.M. May 3, 2010).

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and in the interest of comity with the state court and efficient and expeditious justice
for the parties, the Court concludes it should abstain from hearing this matter.

Both McClan Construction and NJ Trenching chiefly argue against permissive
abstention by alleging Cornerstone Bank has violated the bankruptcy automatic stay
because it did not release its wage garnishment upon receiving notice of Debtors’
bankruptcy, and that this is an “other significant factor” weighing in favor of this
Court’s retention of the garnishment case. In response, Cornerstone Bank counters
that because McClan Construction and NJ Trenching answered its garnishment that
Debtors were never employed at either entity, there was no garnishment to release
when Debtors filed their bankruptcy petition. Regardless, the Court does not find this
dispute changes its determination regarding permissive abstention. Whether there has
been a violation of Debtors’ bankruptcy automatic stay is a separate issue from the
determination of the proper court to decide Cornerstone Bank’s Amended Garnishment
Objection. Thus, if Debtors contend there has been a violation of the automatic stay
and wish to pursue that theory with this Court, this decision does not preclude them
from doing so.

C. Remand Based on Equitable Grounds
To complete the analysis, Cornerstone Bank also argues that the Court should
remand this matter to the state court under 28 U.S.C. § 1452(b), which permits remand
of removed cases “on any equitable ground.” Some courts have looked at equitable
factors when considering remand under § 1452(b), such as:

(1) forum non conveniens; (2) a holding that, if the civil action has been
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Case 15-06067 Doc# 13 Filed 09/21/15 Page 17 of 20


bifurcated by removal, the entire action should be tried in the same court;

(3) a holding that a state court is better able to respond to questionsinvolving state law; (4) expertise of the particular court; (5) duplicativeand uneconomic effort of judicial resources in two forums; (6) prejudice tothe involuntarily removed parties; (7) comity considerations; and (8) alessened possibility of an inconsistent result.33
Other courts have determined that the “analysis of a request for equitable remand

under § 1452(b) and permissive abstention under § 1334(c)(1) is substantively the

same.”34

For the reasons stated above in support of discretionary abstention, the equities

of this matter also require remand to state court. The state court is more familiar both

with the parties and with the litigation at hand than this Court is, and in the interest

of comity and justice, the equities justify remand. The state court has handled this

litigation and its attendant legal issues for multiple years and will be able to make a

determination with a smaller expenditure of judicial resources.

33 Orman v. Hollywood Motion Picture & Television Museum, No. 09-2333,
2009 WL 2914054, at *3 (D. Kan. Sept. 8, 2009) (quoting SBKC Serv. Corp. v. 1111
Prospect Partners, L.P., 204 B.R. 222, 225 (D. Kan. 1996)); see also Textron Inv.
Mgmt. Co. v. Struthers Thermo-Flood Corp., 169 B.R. 206, 211 ( D. Kan. 1994)
(stating factors as “whether (1) there is duplication of judicial resources oruneconomical use of judicial resources; (2) the remand will adversely affect theadministration of the bankruptcy estate; (3) the case involves questions of state lawbetter addressed by a state court; (4) there are comity considerations; (5) there isprejudice to unremoved parties; (6) the remand lessens the possibility ofinconsistent results; and (7) the court where the actions originated has greaterexpertise”).

34 Marah Wood Prods., LLC v. Jones, 534 B.R. 465, 477 (D. Conn. 2015).

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D. Attorneys’ Fees
Cornerstone Bank seeks an award of its attorneys’ fees and costs for what it
characterizes as McClan Construction and NJ Trenching’s “improper removal.” Under
28 U.S.C. § 1447(c), an “order remanding [a] case may require payment of just costs
and any actual expenses, including attorney fees, incurred as a result of the removal.”

A fee award under § 1447(c) is a discretionary decision.35 “[T]he standard for
awarding fees should turn on the reasonableness of the removal. Absent unusual
circumstances, courts may award attorney’s fees under § 1447(c) only where the
removing party lacked an objectively reasonable basis for seeking removal. Conversely,
when an objectively reasonable basis exists, fees should be denied.”36

Although the Court ultimately finds the parties’ dispute should be determined
by the state court, the filing of the notice of removal was not objectively unreasonable.
The notice of removal was done quickly after Debtors’ bankruptcy case was filed, and
it was not unreasonable to assert the parties’ garnishment litigation could have a
foreseeable effect on Debtors’ bankruptcy estate. The garnishment litigation touches
on questions of Debtors’ earnings, and obviously, employment and income are
important facets of the administration of a bankruptcy case. There appear to be no
unusual circumstances warranting an award of fees under § 1447(c), and the request
is therefore denied.

35 Auld v. Auld, 553 F. App’x 807, 808 (10th Cir. 2014).
36 Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005).


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III. Conclusion
This Court has subject matter jurisdiction over this cause of action, as it is
related to the administration of the bankruptcy case. However, because this case is
based on state law garnishment claims that, in the interests of comity and justice,
should be heard at the state court, this Court exercises its discretion pursuant to 28

U.S.C. § 1334(c)(1) and abstains from hearing this proceeding. For the same reasons,
the Court remands this matter to the state court under 28 U.S.C. § 1452(b). The Court
denies, however, Cornerstone Bank’s request for attorneys’ fees and costs.
Accordingly, Cornerstone Bank’s motion for discretionary abstention37 is granted
in part and denied in part. This proceeding is remanded to its original court for
continued management.

The motion, filed by McClan Construction and NJ Trenching, for waiver of the
requirement under Federal Rule of Bankruptcy Procedure 9027 to file certified copies
of the state court file38 is denied as moot.

It is so ordered.

# # #

37 Doc. 6.
38 Doc. 2.

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Case 15-06067 Doc# 13 Filed 09/21/15 Page 20 of 20

11-21183 Combs (Doc. # 43)

In Re Combs, 11-21183 (Bankr. D. Kan. Jun. 16, 2015) Doc. # 43

PDFClick here for the pdf document.


SO ORDERED.
SIGNED this 16th day of June, 2015.

 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re: Case No. 11-21183
Dante A. Combs, and Chapter 7
Alicia P. Combs,

Debtors.

Opinion and Order Granting
Debtors’ Motion to Reopen their Bankruptcy Case


Debtors Dante A. Combs and Alicia P. Combs filed a voluntary Chapter
7 Bankruptcy Petition in April 2011.1 They received their discharge in August
2011, and the Court simultaneously closed their case.2 In March 2014, Debtor
Dante Combs, a young African American man, sued Lounge KC, LLC,
Entertainment Concepts Investors, LLC, Entertainment Consulting

1 Doc. 1.

2 Doc. 21.

Case 11-21183 Doc# 43 Filed 06/16/15 Page 1 of 23


International, LLC, and The Cordish Companies, Inc. (hereafter Cordish), for
actions he now believes those entities initiated or sanctioned, or both, when,
three times in a relatively short period of time, he was allegedly treated
differently than Caucasian patrons of the Kansas City Power and Light
District (P&L District).

The lawsuit, filed in the United States District Court, Western District
of Missouri, alleges discrimination in violation of 42 U.S.C. § 1981.3 But
Cordish seeks to prevent Mr. Combs from presenting any evidence of that
alleged discrimination, and recovering any damages resulting from it, if any,
under theories of judicial estoppel, standing, and laches, arguing that Mr.
Combs lost his right to proceed with the lawsuit because he waited too long to
seek to amend his bankruptcy schedules to disclose this potential asset. The
issue has surfaced in this Court via Debtors’ Motion to Reopen4 their 2011
Chapter 7 bankruptcy proceeding to allow them to list as a “contingent claim”
the lawsuit against Cordish; Cordish has objected to that motion.5 After
hearing evidence, which included the sworn testimony of Debtor and his wife,
the Court concludes both that Cordish lacks standing to pursue this objection

3 Case No. 2014CV00227.
4 Doc. 25
5 Doc. 29.


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and that Debtors’ omission of the contingent claim was inadvertent. Because
the Court finds that Cordish lacks standing to object, the Court overrules
Cordish’s objection. Because the Court finds that the Debtors’ omission was an
innocent mistake entirely devoid of bad faith, the Court grants Debtors’
Motion to Reopen.

I. Findings of Fact
As a preliminary matter, ascertaining the truth of Mr. Comb’s
discrimination allegations against Cordish was not the purpose for the hearing
held June 5, 2015. As a result, these background facts on the discrimination
issue only present his side of the story. Conversely, the hearing gave both
Cordish and Combs an opportunity to present evidence on facts relevant to
reopening the bankruptcy, and the Court here makes findings of fact on that
matter.

In August 2010, Combs was meeting friends in the P&L District at
Makers Mark when he and one of his friends were attacked by another
customer. Security personnel who may have been connected with Cordish
detained him and his friend, but let the attacker—a Caucasian male, walk
away. Combs was ultimately told to leave. At that time, he felt he had been
treated unfairly, and it felt like discrimination because the Caucasian male
who had started the fight was treated more favorably by the security

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personnel. But it never occurred to him that he had enough evidence or any
basis to bring any kind of lawsuit against the security staff; he never
considered filing an action at that time. As a young black male, this was
hardly the first time he had experienced discrimination, and he decided to just
move forward instead of dwelling on the traumatic incident.

Combs was also during this time experiencing financial problems as a
result of owning some rental housing units during the housing crisis.6 He and
his wife filed Chapter 7 bankruptcy about 8 months after the first P&L
incident. On his Schedule B, item 21, Debtor was to list his “contingent and
unliquidated claims of every nature;”7 he did not disclose any potential lawsuit
he might have against Cordish or anyone else.8 When asked in this
proceeding—some four years after he completed that Schedule, why he failed
to list this as a “contingent” asset, he said although he reviewed his schedules
and signed them under penalty of perjury, there was nothing about the P&L
incident that would have made him consider it “property,” or an “asset” or a
“claim.” He has no legal training, and nothing about the words used in
Schedule B, # 21 made him even consider the single P&L incident that

6 Exhibit C, first paragraph.
7 Doc. 1, Schedule B, “Type of Property, 21.”
8 He listed no claims against anyone in answering Question 21, including any


claim he might have had against his actual attacker for assault.

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occurred to him 8 months earlier as he completed his schedules. He had no
intent whatsoever to file a lawsuit against anyone at the time he filed his
bankruptcy petition; the P&L incident had occurred months earlier, and he
had long since decided to just get on with life. He had no inkling that he might
even have a claim, and thus had no motive to not list the lawsuit on Schedule

B. It simply did not occur to him.
Creditors had until late August 2011 to file any objections to Debtors’
discharge. None were filed, and, immediately after that deadline, the Court
issued the discharge order and the bankruptcy case was promptly closed.
Between the date the bankruptcy was filed and the discharge was granted—a
time when little was going on in the bankruptcy as the parties were merely
awaiting the running of the discharge objection deadline, Combs again went to
the P&L District and once again experienced what felt to him to be
discrimination. This time it was at a different club, where he had to stand in
line to be admitted with friends. He was wearing typical business clothes for
him (a suit or suit pants and a shirt), as his job as a pharmaceutical
representative required, but the doorman several times denied him access to
the club. Finally, when he insisted on knowing why, he was told to step out of
line and show his driver’s license, and then was told he was being denied
access because his pants were “too baggy.” This felt like pretense to him, but

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once again, he processed what had happened to him, speaking with his lawyer
friends, and decided that he should just forget the incident and try to move on.

A third incident occurred at the P&L district in July 2011, at yet
another establishment—Tengos. Combs was attempting to text friends he was
meeting, when an unknown Caucasian male knocked his phone from his
hands, causing it to break and fall apart. He assumed the person was simply
intoxicated and had been reckless until that man returned (as Combs was
retrieving the phone pieces) and verbally assaulted him, used profanity and
tried to pick a fight. Combs did not engage in the fight, but security personnel
nevertheless suddenly surrounded Combs and escorted Combs out of the P&L
district. Combs believes the attacker was, again, neither detained nor turned
over to police.

Even after all three of these incidents, Combs apparently did not
connect any dots. He again vented his frustration with friends, some of whom
were lawyers, about the incident, but never considered that he had a claim or
that he would sue anyone. That all changed—for the first time—three years
later, in early 2014, when media reports surfaced alleging that management of
the P&L district was employing purposeful strategies to discourage African
Americans from coming to the district and/or encouraging them to get into
fights so they would get kicked out of the district and/or be taken to jail. One

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allegation was that P&L management was hiring (off the payroll) “white
rabbits”—men hired to provoke fights.

After hearing these reports, Combs for the first time connected the dots
and decided that he had been a target of deliberate discrimination. He
considered the problem and decided that if anyone was going to take on this
issue, and be a voice for social justice, it would have to be someone like him.
Combs is a well-educated and articulate black male with a professional job
and a family, with no criminal record—someone who a jury might find
imminently believable. Only after consulting a lawyer in the spring of 2014
did he decide to file suit.

Cordish has now filed a summary judgment motion in that lawsuit,
seeking to bar Combs from going to trial on these allegations. Cordish asserts
two summary judgment theories that are relevant here: (1) that Combs lost
his standing to sue Cordish when Combs declared bankruptcy, because if the
suit is an asset, only the Chapter 7 Trustee assigned to his case, Steve Rebein,
would have standing, and (2) that Combs must be judicially estopped from
suing Cordish and recovering any damages because Combs failed to list the
“claim” he had against them when he filed his bankruptcy petition in April

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2011.9

When Combs learned of this defense to his suit, he came to

understand—for the first time—that Cordish was interpreting the single pre


petition incident at Makers Mark in August 2010 as a “contingent claim” and

that they were asserting he should have listed that “asset” on Schedule B.

Although he still didn’t understand how the incident could be construed an

asset or property, he decided to put the issue to bed by simply amending

Schedule B to list the lawsuit. He followed his bankruptcy lawyers’ advice to

seek to reopen his bankruptcy to list this lawsuit (or at least any portion of

any damage award that might accrue from the seemingly smaller piece that

occurred pre-petition), fully recognizing that if he were to recover any damages

9 Although Cordish argues that Debtors should have updated their schedulesafter the second and third incidents, the Court notes that Cordish has supplied nobinding Tenth Circuit precedent for its argument that Debtors, who filed a Chapter7 bankruptcy, were under a continuing obligation to update their schedules toreflect the changing nature of the claim at issue here. The Tenth Circuit suggeststhat courts requiring an update to the schedules take a minority view, and theTenth Circuit has explicitly rejected arguments for judicial estoppel based on afailure to update the schedules in a Chapter 7 proceeding. “[I]t appears that theview that a debtor's duty to amend a properly reported schedule with newinformation about the evolving estimate of value of a litigation claim is a minorityview at best. If we are going to weigh in on this issue in this circuit, it should be in abankruptcy case where the question is whether a discharge of bankruptcy should begranted to a debtor given his failure to amend his schedules, and not in a judicialestoppel case.” Vehicles Market Research v. Mitchell Int’l, 767 F.3d 987, 999 (10thCir. 2014). The Court will not evaluate the Debtors’ failure to update theirschedules after the second and third alleged incidents, but focuses instead onDebtors’ failure to disclose the claim based on the first incident.

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from the initial incident, that the Chapter 7 trustee would have the
opportunity to elect whether to administer those funds for the benefit of his
unsecured creditors.

Cordish has objected to the Motion to Reopen, claiming it is too late for
Combs to amend his schedules and claiming that Combs is not acting in good
faith. Cordish tried to establish at the trial on this motion that Combs is
motivated not by a true desire to list the asset to potentially get a recovery for
his unsecured creditors, but to line his own pocket with any damage award.

At the trial, attended by Rebein, the Court asked Rebein whether he had
had an opportunity during the relatively short time the Motion to Reopen had
been on file to consider the value of this potential asset and whether he
wanted to administer this potential asset as the Trustee. Rebein indicated he
had fully investigated this asset—the single pre-petition incident that was the
first of three incidents that constitute the lawsuit, and that he intended to
abandon it, as he did not believe it held any value to the estate worth
administering.10

10 Cordish argues the Court should “have doubts about Mr. Combs’ innocent
intentions”regarding the failure to include the claim on Schedule B because Mr. Combs
stated in an affidavit that he had paid his creditors in full, notwithstanding receipt of a
discharge, when he has apparently not paid all of them. While no court ever condones
any false statement, this testimony did not serve to undermine the Court’s overall belief
in the credibility of Mr. Combs’ testimony on the main issues surrounding the Motion
to Reopen.

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II. Analysis
This matter constitutes a core proceeding over which the Court has the
jurisdiction and authority to enter a final order.11

The decision to reopen a bankruptcy case is within the discretion of the
bankruptcy judge.12 A court’s discretion to reopen a case is broad but must be
“tethered to the parameters of § 350(b).”13 Section 350(b) allows a case to be
reopened in the court where it was closed “to administer assets, accord relief
to the debtor, or for other cause.” As a practical matter, motions to reopen a
case should only be granted if the underlying relief requested can be granted
by the bankruptcy court.14 Here, the underlying relief requested is the
addition of this lawsuit to the Debtors’ list of personal property in Schedule B,
and that question, whether Debtors may amend their schedules to add this
asset, ultimately controls whether the Court can and should grant their
motion to reopen.

As a preliminary matter, Debtors argue that Cordish lacks standing to

11 See 28 U.S.C. § 157(b)(2)(A) (stating that matters concerning the
administration of the estate are a core proceeding); § 157(b)(1) (granting authorityto bankruptcy judges to hear core proceedings).

12 See, e.g., In re Rosinski, 759 F.2d 539, 541 (6th Cir. 1985).

13 In re Apex Computer Corp., 71 F.3d 353, 356 (10th Cir. 1995).

14 In re Jester, 2014 WL 7408943 at *2 (Bankr. E.D. Okla. 2014) (citing In re
Schicke 290 B.R. 792, 798 (10th Cir. BAP 2003)).

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object to the Motion to Reopen.15 In the Tenth Circuit, at the appellate level, a
party appealing a court’s decision to grant a motion to reopen must meet the
“person aggrieved” standard, under which appellate review is available only to
“those persons whose rights or interests are directly and adversely affected
pecuniarily by the decree or order of the bankruptcy court.”16 And the Tenth
Circuit BAP has ruled that a defendant, like Cordish, in a separate action
brought by a debtor, does not meet the person aggrieved standard and thus
lacks standing to object to a motion to reopen.17 As a result of this binding
precedent, the Court concludes that Cordish lacks standing to pursue this
objection, and therefore overrules its objection.

Nevertheless, because reopening is a discretionary action by the Court,
the Court must still weigh the merits of the Motion to Reopen and determine
whether to grant that motion. In weighing that Motion, the Court finds that
Cordish’s arguments frame the main issues surrounding the Motion, and so

15 Although this issue was raised by the Combs before Cordish’s brief was
due, Cordish regrettably elected not to address its own standing.


16 Holmes v. Silver Wings Aviation, Inc., 881 F.2d 939, 940 (10th Cir.1989)
(internal quotation marks omitted).


17 Riazuddin v. Schindler Elevator Corp. (In re Riazuddin), 363 B.R. 177, 183
(10th Cir. BAP 2007) (“Appellee's claim that its defense in the personal injury casemay be affected by the reopening is insufficient to give it a direct interest in theDebtors' bankruptcy case, and therefore, it lacked standing to oppose the motions toreopen.”).

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the Court will analyze the Motion around their arguments.

The Court notes that, although the district court in the discrimination

suit in Missouri will apply Eighth Circuit law, this Court is bound by Tenth

Circuit precedent in interpreting the motion to reopen (here, for the purpose of

amending Schedule B). The Tenth Circuit has addressed the standards for

evaluating a debtor’s motion to amend:

Debtors may amend bankruptcy schedules as amatter of course. But an amendment may be denied,
however, if there is bad faith by the debtor orprejudice to creditors. . . . The Bankruptcy Code doesnot define bad faith. Like most questions of motiveand intent, bad faith is a question of fact. Bad faithmay be established by circumstantial evidence, or byinferences drawn from a course of conduct. . . .

We also recognize that an inadvertent omissionmay be an affirmative defense to a debtor's failure todisclose an asset in bankruptcy. Inadvertence can beestablished by showing, among other things, either (1)
the debtor had no knowledge of the undisclosed asset,
or (2) the debtor had no motive to conceal it. Theburden of establishing inadvertence lies with thedebtor.18

Here, Cordish argues that the motion to reopen (and, implicitly, the eventual

amendment of the schedules) should be denied based on the theory of judicial

estoppel, on the theory that Mr. Combs lack standing to pursue his

18 Gillman v. Ford (In re Ford), 492 F.3d 1148, 1155-56 (10th Cir. 2007)
(citations and quotation marks omitted). The Court notes that reopening would notprejudice the creditors in any way.

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discrimination case, and on a more nebulous theory, that Debtors have simply
waited too long to seek to reopen their case and amend the schedules. But
Cordish’s judicial estoppel and standing theories are not properly raised in
this proceeding. Both of those theories are defenses to the discrimination case,
and can only be properly raised in the district court where that case is
proceeding. The matter before this Court is limited to the questions of
reopening and amending schedules; whether Mr. Combs is judicially estopped,
or lacks standing, do not directly bear on that decision.19

The Court has reviewed the elements of judicial estoppel, as set out by
the Supreme Court and as applied in the Eighth Circuit (the Circuit in which
the Missouri Western District Court resides). Judicial estoppel requires that,
first, a party's later position be clearly inconsistent with its earlier position;
second, the party has succeeded in persuading a court to accept that party's
earlier position; and third, the party seeking to assert an inconsistent position
would derive an unfair advantage or impose an unfair detriment on the
opposing party if not estopped.20

Tying these requirements together, there seems to be an overall

19 The Court notes that allowing Debtors to reopen this case and schedule thelawsuit would likely eliminate the standing issue entirely, given the Trustee’sintent to abandon the claim.

20 New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001).

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requirement of deliberateness—judicial estoppel seeks “to protect the integrity
of the judicial process by prohibiting parties from deliberately changing
positions according to the exigencies of the moment.”21 In other words, “the
rule is intended to prevent improper use of judicial machinery.”22

In the Tenth Circuit, this is interpreted broadly. “Where a debtor has
both knowledge of the claims and a motive to conceal them, courts routinely,
albeit at times sub silentio, infer deliberate manipulation.”23 The law in the
Eighth Circuit is interpreted more narrowly, and courts there do not infer
deliberate manipulation from knowledge and motivation, but instead require
something beyond mere inadvertence.24 Here, then, Cordish’s judicial estoppel
arguments require, at a minimum, that Combs knew that he had a
discrimination claim against Cordish before he filed bankruptcy, that he had a
motive that led him to hide the claim, and that he did so in order to

21 Id. at 749–50 (internal citation and quotations omitted).

22 Id. at 750 (internal quotations omitted).

23 Queen v. TA Operating, LLC, 734 F.3d 1081, 2013 WL 4419322 (10th Cir.
August 20, 2013).


24 Stallings v. Hussman Corp., 447 F.3d 1041, 1049 (8th Cir. 2006)(“A rulethat the requisite intent for judicial estoppel can be inferred from the mere fact ofnondisclosure in a bankruptcy proceeding would unduly expand the reach of judicialestoppel in post-bankruptcy proceedings and would inevitably result in thepreclusion of viable claims on the basis of inadvertent or good-faith inconsistencies.
. . . Courts should only apply the doctrine as an extraordinary remedy when aparty's inconsistent behavior will result in a miscarriage of justice.”).

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manipulate the system.

If these allegations were true, as Cordish argues, they would also be
sufficient to establish that Combs was seeking to reopen his bankruptcy case
and amend his schedules in bad faith,25 which is why this Court will evaluate
these elements. If Combs sought to reopen his bankruptcy in bad faith, the
Court would exercise its discretion to deny the Motion to Reopen.

For this reason, the Court will construe Cordish’s estoppel argument as
alleging the bad faith necessary to deny Debtors’ Motion to Reopen to amend
their Schedule B. When, as here, a party has failed to disclose an asset,
“inadvertent omission may be an affirmative defense to a debtor's failure to
disclose an asset in bankruptcy. Inadvertence can be established by showing,
among other things, either (1) the debtor had no knowledge of the undisclosed
asset, or (2) the debtor had no motive to conceal it. The burden of establishing
inadvertence lies with the debtor.”26

For the reasons articulated below, the Court finds no bad faith on the
part of Debtors. Debtors have met their burden of demonstrating that their
omission of the claim from Schedule B was inadvertent. Their failure to list
the claim was inadvertent because they had no knowledge that the P&L

25 In re Ford, 492 F.3d at 1155-56.
26 Id.


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incident constituted “property” or an “asset” that had to be disclosed, and
when they filed bankruptcy, they had no motive to conceal it.27 There is no
evidence that Debtors sought to manipulate the court system.

In short, I find no evidence even suggesting that Debtors failed to
disclose this claim in bad faith. Combs testified that, after the first allegedly
discriminatory incident, he immediately felt that he had been discriminated
against and that he felt harmed by that discrimination, but he had no idea
that this incident could be considered a legal claim at that time. He testified
that he did not understand, or believe, that he had a claim until almost three
years later, in 2014, when media reports surfaced alleging that the owners of
the P&L District hired white men (“rabbits”) to attack black patrons for the
purpose of getting those patrons thrown out of the P&L District by security
guards (among other illegal plans allegedly designed to dissuade black patrons
from frequenting bars and restaurants connected to Cordish).

As Combs convincingly argues, most people would not consider every
rude action they might experience in everyday society could constitute a cause
of action that must be disclosed in a bankruptcy filing lest it be forever lost.

27 The fact that the Trustee has indicated an intent to abandon any claim the
estate may have as a result of the one pre-bankruptcy filing P&L incident also buttresses
the point that the Combs would not have had a motive to hide the “asset,” since
standing alone, the Trustee believes it likely has little value to administer.

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That would be nonsensical, and indeed, that is not the standard. When a
debtor—especially one with no legal training like Mr. Combs—does not know,
and has no reason to know, that he has a potential cause of action, he should
not be punished for failing to disclose the inchoate claim. And, the Court is
convinced, that is the case here.

At the time Combs filed bankruptcy, he simply had not connected the
dots leading to his discrimination claim, and indeed he was under no
obligation to do so. Only after the second and third incident, coupled with the
publication of the media reports almost three years later, could Combs have
reasonably understood he might have a claim. There is no evidence suggesting
that Combs thought, or realistically should have thought, he had a claim when
he filed bankruptcy.

Based on the evidence, I conclude that Combs did not know that he had
any potential claim at the time he filed bankruptcy. Moreover, I find no
evidence that Combs deliberately changed his litigation position in order to
manipulate the court system. He never knowingly mislead the bankruptcy
court, the trustee, or his creditors by misrepresenting the existence of his
claim. I find no evidence of any bad faith on the part of the Debtors.

One of the few examples Cordish supplies to support its allegation that
Combs tried to conceal his bankruptcy from the district court (or Cordish)

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derives from an objection Combs’ lawyer interposed to an interrogatory in the
Missouri case, in November 2014. That interrogatory requested he disclose all
lawsuits or administrative proceedings to which he had ever been party,
specifically mentioning any bankruptcy cases. The answer Combs filed
included an objection to the interrogatory as not limited in scope, as having no
relation to his claim of discrimination, and as over broad and vague.

No evidence was presented that Cordish tried to compel an answer to
the interrogatory (or that Combs ever lied about filing bankruptcy), so
apparently Combs has not yet been required to provide a substantive response
to the interrogatory. Cordish presented no evidence that it (or the district
court) was mislead by this objection, and while this Court does not prefer this
kind of litigation tactic exercised by some attorneys, it is not per se bad faith
to object to such an interrogatory. More importantly, it provides no support for
Cordish’s attempt to show Combs was acting in bad faith by trying to “hide”
his publicly filed bankruptcy, because only 5 days later, during a deposition,
Combs volunteered that he had filed bankruptcy in response to a question
about stressors in his life. Combs’ willingness to discuss his bankruptcy in
response to a question whose purpose was not even to ask him directly about
the bankruptcy is further evidence that he had no intent to hide the filing.

This Court simply does not buy the argument that this (regrettably)

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normal part of civil litigation—vigorous objections to interrogatories, many of
which should just be answered—somehow proves that Combs was attempting
to mislead the Court. Once again, the Combs were very credible witnesses,
and the Court believed Mr. Combs when he testified he simply trusted his
attorney in how she recommended they deal with the written discovery, and
that he had nothing to hide.

Cordish also alleges that the Combs were acting in bad faith when their
bankruptcy lawyer prematurely filed an amended Schedule B,28 because it
lists the potential value of the discrimination lawsuit as “unknown,” when
during a mediation Combs sought $20 million in damages. Cordish construes
this as another effort to mislead the Court, or perhaps the Trustee.

But once again, Combs testified very credibly that he has no idea what
value a jury would place on his claim, that he was required in the mandatory
mediation process to pick a number, that he picked one that would compensate
him and a class of African Americans who he thinks have been similarly
discriminated against, and that stating the value as “unknown” is completely

28 For future cases, the Court advises Debtors’ bankruptcy counsel that the
proper method is to attach the proposed amended Schedule B as an exhibit to the
Motion to Reopen.

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accurate.29 The large dollar value requested to start a mediation is largely
irrelevant in determining whether a jury will elect to award any damages, let
alone the dollar value a jury or other finder of fact might actually award as
damages. Listing the claim with an unknown value is entirely appropriate at
this stage in litigation and in this type of case, as it provides information to
the Trustee to enable him to investigate the claim and determine whether it is
an asset that is worthy of administration. And in this case, the Trustee has
had a much better opportunity than most trustees would to evaluate the
claim, because the suit has actually been filed, discovery is apparently
complete, a summary judgment motion with much attached evidence has been
filed, and the case is ready to go to trial in fewer than two months. The listing
of the asset with a value of “unknown” provides no support for Cordish’s claim
that the Combs are proceeding in bad faith.

Cordish generally argues that granting this motion to reopen would
amount to allowing Debtors to attack the integrity of the judicial process
because they would be allowed to take inconsistent positions—failing to list

29 Apparently the Western Missouri court declined to certify a class, and Cordish
tried to undermine Mr. Combs’ credibility by stating he had not amended his claim, to
reduce it, after the class action was denied. The Court does not find this fact, if true, an
example of deception by Combs, but instead, a part of the civil litigation process
because Cordish did not suggest why Combs, at this post-mediation point in the
litigation, would have been required to amend his oral damage claim.

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the suit in the bankruptcy court but prosecuting a claim in the district court.
This argument fails, too. In a case like this, where there is simply no credible
evidence that either Dante or Alicia Combs were gaming the system or had
any reasonable cause to know Mr. Combs might have a claim on the date they
filed the bankruptcy petition, the real harm to the judicial system would be to
allow a defendant to totally escape defending against (or suffering a damage
verdict for) an alleged wrongdoing under a judicial estoppel theory.

Finally, Cordish argues that Debtors failed to file this motion to reopen
within a reasonable time. As a preliminary matter, there is a valid question
whether Debtors were under any obligation to disclose the claim at all. As
discussed above, after the first, single incident, the claim was so inchoate as to
not merit disclosure. It is more likely than not that Debtors would not have
had any idea that the incident he was involved in potentially constituted an
actionable discriminatory event on which he could base a claim. Although
Debtor eventually filed suit under 28 U.S.C. § 1981, and § 1981 claims accrue
at the time of the unlawful act,30 the Court finds it implausible that Debtor
would have had a viable claim after the first alleged incident.

In the Tenth Circuit, a claim is an asset of the estate if it “is sufficiently

30 Edwards v. Boeing, 996 F.2d 310, 1993 WL 214566 at *3 (10th Cir. 1993)
(unpublished).


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rooted in the pre-bankruptcy past.”31 The decided weight of these claims of
discriminatory treatment come from the second and then the third
incidents—when what appeared to be an isolated incident started to look less
isolated and innocent and more as the start of an emerging pattern. And even
after all three incidents, Combs still filed no action. It was only when, three
years post-petition, Combs learned of the 2014 allegations concerning
Cordish’s possible broader actions, that Combs should have (and did) realize
that the three incidents might constitute a meritorious claim.

Accordingly, because of the way these incidents evolved, they are rooted
in Debtors’ post-bankruptcy future, not their past. The Court will not punish
Debtors for failing to disclose a claim that did not exist, in any viable sense,
until well after the Debtors filed for bankruptcy. Under these circumstances, I
find the motion was filed within a reasonable time. Combs testified very
credibly that he had no reason to understand the one pre-petition incident
could be deemed to be an asset that had to be disclosed, and immediately after
he became aware of his duty to disclose that claim, he moved to reopen his
case to do so. Given the nature of the claim, it is difficult to imagine how he
could have reopened in a more reasonable time.

31 Clementson v. Countrywide Financial, 464 F. App'x. 706 (10th Cir. 2012),
citing Segal v. Rochelle, 382 U.S. 375, 380 (1966).


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Because the Court finds the Combs’ explanations for why they did not
initially list the potential claim in their bankruptcy schedules very credible,
because there is no credible evidence that Mr. Combs even knew he was
taking a potentially inconsistent position in his bankruptcy action versus his
federal court lawsuit, and no evidence presented during the evidentiary
hearing painted Combs as attempting to hide the true facts or undermined his
credibility on these issues, the Court grants the Motion to Reopen to allow the
amendment.32

# # #

32 Again, counsel for Combs should have awaited the ruling on the Motion to
Reopen prior to filing the amended Schedule B (which was filed as Doc. 27, one dayafter the motion). The Court, however, deems this error harmless, and finds itwould be pointless to strike it at this juncture and require it be refiled.

23


Case 11-21183 Doc# 43 Filed 06/16/15 Page 23 of 23

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